EconoMonitor

Nouriel Roubini's Global EconoMonitor

The WEF’s Financial Development Report and Index: Why is the US ranked #1 in spite of its serious financial instability and crisis?

The World Economic Forum has published this week its first Financial Development Index and Report that provides an index of financial development for 52 advanced and emerging market economies. I was the lead academic advisor to this project and – together with analysts in my team at RGE (especially Ayah El-Said and also Kavitha Cherian) – we developed and constructed this index that is based on over 120 measures of financial sector development. Empirical and analytical academic literature suggests that the development of financial systems is an important factor in long economic growth and performance. Here is a link to the full report and to the rankings of the 52 countries.

I was also the co-author of the main chapter of this report where the results of the rankings are discussed. I was also the author of a separate chapter in this report on financial stability, financial crises and the reforms of the system of supervision and regulation of financial institutions necessary to reduce the frequency and severity of financial crises in advanced economies.

See a Financial Times article for an exclusive media preview of the results of this report. And see the wide media coverage of this report.

Also there is a YouTube video where the main features and results of this Financial Development Index are presented.

One of the apparently surprising results of the Report’s rankings is that the US and the UK show up at the top of the ranking in terms of financial development (#1 and #2 respectively). The result is partly surprising because the recent financial turmoil and crisis in the US and the UK has revealed some of the vulnerabilities of the financial systems of these two economies. The report ranks financial development on the basis of seven groups of variables: institutional environment; business environment; financial stability; banks; non-bank financial institutions; financial markets; size, depth and access to capital. The US and the UK rank very high for the development and sophistication of their bank and non-bank financial institutions, the development of their financial markets (stocks, bonds, forex and derivatives), and the size, depth and access to financial services. Interestingly their ranking in terms of financial stability (a measure of the risk of systemic banking crisis, currency crisis and sovereign debt crisis) is much lower; they also show some weakness in terms of the institutional environment (regulation/supervision and business perceptions of weak institutions) and business environment (especially the cost of doing business for the UK).

The issue of financial stability is of great importance as the US and the UK have recently shown significant vulnerabilities in this area. The report addresses this matter by considering separately a category for financial stability where the ranking of the US and the UK is weaker (respectively #10 and #23) and through a separate chapter – which I wrote – on financial stability. The US and the UK are ranked lower as far as financial stability is concerned because of both a higher risk of a banking crisis and a higher risk of a currency crisis (given the large current account deficit and the overvalued currency).

The issue of financial stability is an important one that I flesh out in more detail in a chapter of the report titled Financial Crises, Financial Stability, and Reform: Supervision and Regulation of the Financial System in a World of Financial Globalization”. This chapter analyzes in detail the episodes of financial crisis in emerging market economies and advanced economy; discusses the causes and consequences of such crisis; measures the economic and fiscal costs of such crises; discusses the debate on whether monetary and credit policy should target asset prices and asset bubbles; studies the weaknesses of financial regulation and supervision in advanced economies financial systems that led to the recent crises; and finally considers eleven separate key issues in the reform of the regulation and supervision of financial institutions in a world of financial globalization that are necessary to prevent future crisis and make them less virulent.

The eleven issues that are key in reforming financial regulation and supervision are: the distorted compensation system of bankers/traders and the related agency problems between financial institutions shareholders and their managers; the flaws of the originate and distribute securitization model; regulatory arbitrage and the instability of the shadow banking system given its reliance on short term liquid financing, high leverage and long term illiquid lending; the weaknesses of self-regulation and market discipline and the need of greater rules-based regulation; pro-cyclical capital requirements and other issues with the Basel II capital requirements; the distorted incentives of credit rating agencies; asset valuation and fair value accounting in a world where assets can be highly illiquid and hard to price; the lack of transparency in financial markets; the inadequate regulatory regime; the lack of international coordination of regulatory policies; and the issue of who will regulate the regulators, i.e. how to avoid the regulatory capture by the financial industry of the regulators and supervisors of financial institutions.

The paradox of the US and UK being ranked top at a time when there is significant turmoil, weakness and vulnerabilities in their financial systems can be explained as follows:

There is a tradeoff between greater financial innovation (that is beneficial to develop more sophisticated financial instruments allow better allocation of savings to investment and better risk diversification) and financial risk and instability that may increase if such innovation does not occur in the appropriate regulatory and supervisory regime. A country may be very financial stable with little risk of a financial/banking crisis but if this stability is the result of excessive regulation that foster little financial innovation, little competition and efficiency in financial markets and institution such financial stability will come at the cost of poorer financial intermediation that is not beneficial to long term economic growth and performance. So, excessively stable financial regimes are not necessarily ideal. Conversely, if financial innovation is excessive and occurs in a weak regulatory framework financial markets may be much more sophisticated but the risk of instability is also greater.

The way I put it in my chapter for the report:

The issue of financial stability is central to the assessment of the financial development of a country. The experience of the last few decades in both emerging market economies and advanced economies shows the pervasiveness of financial crises. These crises— signals of financial instability and the failure of the proper working of the financial system— have important economic and financial consequences, and usually lead to severe economic contractions—recessions if not depressions—that may be either short lived or persist over time. If these real effects persist, the long-run potential and actual growth rate of an economy may be significantly lowered, which has negative effects on long-term welfare. Financial crises
are also expensive, as they are associated with significant bankruptcies among households, corporate firms, and financial institutions, with all the ensuing social deadweight losses from debt restructurings and bankruptcies. Financial crises often lead to expensive government intervention, with ensuing fiscal costs to bail out distressed borrowers (households, firms, and financial institutions). These fiscal costs can be very high: in the experience of many financial crises, as high as several percentage points of GDP, often well above 10 percent of GDP.

Thus persistent and severe financial instability, as measured by the pervasiveness and severity of financial crises, is a signal of failure of the financial system: failure to properly allocate savings to investment projects and failure of corporate governance. Of course, in a market economy, some degree of bankruptcy is a healthy sign of risk-taking. A financial system so “stable” that no bankruptcy would ever occur would indicate low risk-taking and diminished entrepreneurship; the lack of risky—but potentially high-return—investment projects would decrease long-term economic growth. There is a substantial difference, however, between occasional bankruptcies of firms, households, or banks—bankruptcies that are healthy developments in flexible and dynamic market economies—and a systemic banking or corporate crisis where a large number of financial institutions or corporations go bankrupt. In short, a systemic financial crisis is a sign of the failure of the financial system, the failure of appropriate risk management, and the failure of proper corporate governance.

This chapter will analyze the issue of financial crises, the stability of the financial system, and the foundations of sound regulation and supervision. It starts with an overview of the many financial crises in advanced and emerging market economies in the last few decades and the most recent episode of financial turmoil and distress in advanced economies’ financial systems. It next considers the role that asset bubbles and credit bubbles—and their eventual bust—have in financial crises, and then debates whether monetary and credit policy should be used to prevent or control such asset and credit bubbles. Finally, in light of the recent financial crises in advanced economies, it discusses the market failures and regulatory failures that led to this turmoil, and overview the basic issues and principles that affect the reforms needed to improve the supervision and regulation of the financial system and make it more stable.

The importance of the stability of the financial system

The issue of financial stability is important because of the pervasiveness of episodes of financial crises (systemic banking crises, systemic corporate crises, currency crises, and sovereign debt crises) that have negative effects on economic growth and that lead to significant losses to investors. In thinking about financial stability one should think in terms of a tradeoff between risk and return/innovation. A financial system that is very heavily supervised and regulated may be very stable, but such a controlled system would hamper financial development and the innovation that allows increased returns, better diversification of risks, and better allocation of resources to those investments that provide the highest return. Conversely, a financial system that is free and innovative and very lightly regulated and supervised may eventually become unstable and trigger credit booms and asset bubbles that, when they fail, or go bust, have severe effects on growth, returns, and welfare.

Thus, although there is some tradeoff between the stability of the financial system and its degree of innovation and sophistication, financial stability is a crucial input into the process of financial development. Excessively unstable financial systems—systems that are prone to repeated and virulent financial crises—are less likely to be able to foster a sound development of their overall system. For example, repeated banking crises that cause serious liquidity and credit crunches severely hamper the process of intermediation of savings to the appropriate investment projects. Systemic banking crises are themselves a signal that the allocation of resources was poor in the first place, exhibiting a misallocation to investments with very low returns that then provide the trigger. Moreover, as discussed below, financial crises have significant real economic and financial costs.

So, in conclusion the US does have indeed the most developed and sophisticated financial institutions, financial markets and financial instruments in the world. But size and depth and sophistication of financial intermediation have come at the cost of a very weak regulatory and supervisory regime that has fostered financial innovation but has not provided an appropriate regulatory and supervisory framework to ensure financial stability. Thus, the severe financial and banking crisis that the US is now experiencing is the result of such financial instability. The US does not have only a sub-prime mortgage problem; it also has a sub-prime financial system whose flaws the recent crisis has revealed.

The US may still have the most wide, deep and sophisticated financial markets in the world. But the recent crisis has also revealed the serious weaknesses in its financial system and the necessity of significant reform of its regime of regulation and supervision of all financial institutions, banks, non-banks, hedge funds and other highly leveraged financial firms. The political willingness and ability to implement such reform in rapid order will determine whether the US will maintain its role as the most sophisticated financial market in the world while at the same time regaining a necessary degree of financial stability that is crucial for ensuring appropriate financial intermediation and provision of financial services to firms and individuals.

As other financial crises suggest extreme financial instability and crises lead to severe collateral damage to the real economy. If the US financial crisis were to continue and deepen – as it is possible and likely given the severity of the current financial turmoil – the process of financial deleveraging will exacerbate the liquidity and credit crunch, reduce the availability of credit and increase its price to firms and households and cause a deeper and more protracted economic recession. The costs of financial crises – in terms of severe economic contractions and large fiscal cost of bailing out debtors and lenders – can be massive. Thus, the failure to properly resolve this financial crisis may lead to serious long run consequences for economic growth in the US.

235 Responses to “The WEF’s Financial Development Report and Index: Why is the US ranked #1 in spite of its serious financial instability and crisis?”

MartinSeptember 11th, 2008 at 9:46 am

Alrightie folks, listen upLEH has just been given the bad news by regulators.LEH had pleaded to delay the bad news by 24 hours so that they can chose a buyer (there are couple of them ..making a decent case).

bythewaySeptember 11th, 2008 at 10:19 am

So what is the case?How much regulation needs a system to work proper but is not at risk to become as criminal and fraudulent as now?Second question: If a system is becoming such, how you can change it?With bailouts?All the guys in this system are condaminated with fraud and greed.But you cant change the whole staff.So maybe it has become more an social heritage than an economical.The political and financial class in the US is corrupt.There is no way to change it.

GuestSeptember 11th, 2008 at 10:25 am

@MartinDon’t know who you are but have missed your knowledge over the past few months. Thanks for the “heads up”crgordon

richinarSeptember 11th, 2008 at 10:26 am

Dear Senator,The federal government seems to have begun a transformation of our free markets. The takeover of the GSE’s FANNIE and FREDDIE has doubled the national debt with the stroke of a pen. Our government is fighting an increasingly expensive and unnecessary war while running unsustainable levels of fiscal deficit.There are several other issues with large corporations in the United States. Insolvency seems to be the root of the issue. The taxpayers of this great nation should not be burdened with the costs of the overwhelming failure of corporate America. In free markets corporations must be allowed to fail.Unless the government stops interfering with the free markets, foreign governments will no longer perceive our markets to be trustworthy and will begin to withdraw their monetary support of our debt. The ramifications of such a scenario unfolding are staggering.Americans have put ourselves in this situation by not ensuring adequate checks and balances were in place to forestall the binge of credit and leverage that occurred during the past 10 years. The federal government has been too lax in policy measures that would have at a minimum stunted the issues.All of that aside we are in a position where housing prices nationwide are in a free fall. Unemployment is surging. Commercial real estate is on the precipice of collapse. Credit card debt is in serious default. Banks are beginning to fail at a staggering rate. Our economy is faltering. The domestic automakers are in a failed state. The airline industry is failing.I submit to you that additional debt will not solve our problems. I add that transforming our free markets into what sharply resembles a socialist system will not solve our problems. To me the solutions are here within our borders. Our infrastructure is in shambles. We must rebuild here at home and create long lasting jobs via infrastructure projects.If we continue to simply sit back and watch the scenario unfold we will be watching a terrible disaster unfold. Not the least of which will be the drastic reduction of tax revenues. The government will lose its power if it can not fund its expenditures at some point. That point draws ever closer each day.Unless leadership emerges that addresses the problems from a sober perspective and makes the painful choices to allow the corporations wrought with fraud and greed to fail our society is in peril. We need jobs here at home to finance our government. We need infrastructure renovation. We do not need to give taxpayer money to the corporations responsible for the current situation.I challenge you to be the voice of reason. Represent the average American with your actions. Speak out against corporate greed and force insolvent firms to fail. Ensure those responsible for the unprecedented financial disaster to be held accountable rather than giving them taxpayer monies and golden parachutes.Our culture is going through a challenging period. Unless our government acts in the interests of the American people we have the potential for anarchy. The overburdened taxpayer simply can not afford higher taxes to pay for the unending socialist reformation of our free markets. Unless the government addresses these issues with serious policy measures it faces insolvency itself. How many Americans do you think support a socialist system?There will be pain to be sure. There will be pain if we do not act as well. We must however at some point accept the medicine to cure the disease (greed) that has infected our financial systems and free markets. Debt is not the cure. Foreign investment is waning and will continue to until the foreign governments that finance our debt have leverage and stealth control of our own sovereign society.We must force change. I hope you will begin the process by speaking out against the status quo. Change is near and we must form this change to reflect the interests of Americans and not just the corporations and foreign governments. I will be sending a copy of this letter to everyone I know and posting it on every blog I can find. I will no longer sit silently back while our government allows our country to be transformed at the whim of special interests. I implore you to be the first to take serious actions to move our country forward and not allow it to continue on the path to ruins it is currently on.I do not need yet another form letter back stating your support of the bailout of private enterprises with taxpayer money. We need you to step out of the typical political mode and call for real change and make a statement to the establishment that Americans will no longer stand for corporate welfare before it is too late.

MarkSeptember 11th, 2008 at 2:08 pm

Replying here to maintain a sense of continuity with the changes to the comment structure…The US citizen AND government is BROKE. Even if everyone decided to feel good about each other and chip in to do large-scale pubic works (but do we really want to shore up transportation when we can’t afford to fuel it?) there’s no money for THE NEEDED RESOURCES. The level of work that’s being performed in the US wouldn’t be sufficient to pay our way while paying off our debts (which could only be paid by producing more, which creates the problem of needing to import more materials and energy!).We’ve painted ourselves in a corner; the problem is is that it’s non-drying pain! :-(Mark

richinarSeptember 11th, 2008 at 2:11 pm

Since I seem to be the political activist here I would like to take on a project. I would like to produce a letter or petition that represents our combined view on the current situation and what can be done to fix it. If we all work together I think we can make a difference. Just post your ideas here and I will try to produce something that may make a difference.It may be that I am way out of my league trying to undertake this… maybe the professor could put something like this together that we could all get behind. I am tired of looking at the light in the tunnel knowing that it is a train. How can we make it to the other side without getting crushed?

MarkSeptember 11th, 2008 at 3:36 pm

My input:Before you look to “solve” our “issues” you should first watch Dr. Albert Bartlett’s video “Arithmetic, Population and Energy” (google it).Then I recommend reading up on Murray Bookchin.

London BankerSeptember 11th, 2008 at 10:27 am

I was briefed on the proposed US financial reforms which will be shoved through with minimal review. Short version is that the Fed wins an explicit “financial stability” role which gives it powers and secrecy to do pretty well whatever Tim Geithner chooses to do for his capitalist crony clientele. The role will include comprehensive, global data collection which will give the Fed visibility of all open positions. In the wrong hands, this insight could be used to selectively induce volatility and margin calls which would selectively hurt some and advantage others. That could help the Fed’s friends over time.The FDIC will be stripped of financial supervision and prudential intervention powers in favour of the Fed. That makes the Fed totally unreviewable and unchallenged by other authority in the USA.Additionally, the SEC will be forcibly reformed to be more like the CFTC – a service entity for the interests of those who pay good money for bad regulators. Instead of fixed rules, SEC regulation will become “principles based” which will mean that no one is ever held accountable for breaking the law unless they have done something to break the code of omerta and anger their peers.Federal law and regulation will pre-empt all state laws, and states attorney generals will be stripped of authority to investigate or sue. That means no more inconvenient Elliot Spitzers to get in the way of Wall Street excess.This may not meet Professor Roubini’s recommendations, but the deal is going through with little review so far because the cries for reform are only going to be met with this one pre-agreed proposal. After all, who in Washington or Wall Street would ever suggest that Geithner, Bernanke and Paulson didn’t have the best interests of American and global investors at heart?

oneeyed_fionaSeptember 11th, 2008 at 12:11 pm

Excellent post, LB, succinct & unerringly following the money & power. The financial instability and crisis is just another great opportunity for disaster capitalism. I don’t see a way back now, and richinar’s “letter to the Senator”, while idealistic, seems sadly naïve.

oneeyed_fionaSeptember 11th, 2008 at 1:05 pm

Richinar, your post was an excellent expression of what I *want* to believe in, but I think our society is so hollowed out now by corporate tapeworms that I’m coming to believe that it isn’t fixable. Still, I will vote and communicate these ideas, even if my vote no longer counts.

London BankerSeptember 11th, 2008 at 3:09 pm

@ Professor RoubiniI love the new threading!@ RichinarI wish I knew the one true fix. So much has changed in such a short span of time, and much of it appears irreversible. Without bringing back career bankers and civil servants who devoted whole working lifetimes to their respective institutions, it is hard to envisage how we could incentivise both to behave prudently over the whole business cycle. Without reversing universal banking and globalisation, it is hard to see how domestic regulatory constraints can be preserved against offshore and affiliate gaming of the system. My gut feel is that mutuality of obligation and self-regulation have to come back in some form so that the industry has an ongoing interest in policing its own perimeter against bad practice.

randySeptember 11th, 2008 at 3:38 pm

@ LBI have always read your comments with enthusiasm. I am shocked by what you say is going to be pushed thru with little review. How can we get this info out to the MSM? We need help!!I can’t believe I served my country to let this happen! I’m mad as hell and I don’t want to take it anymore but I don’t know what to do!I’ve about every congressman I know of several times, told my friends (they think I’m nuts)Do I just watch my wealth pour down the toilet?Help…….Please……..

London BankerSeptember 11th, 2008 at 4:27 pm

Start embracing a new standard, Randy. Wealth isn’t money in a fiat currency. It is the love and respect you have for yourself and that those you esteem and cherish have for you. You need a new baseline that TPTB can’t inflate or deflate. When you find it, they won’t threaten you or intimidate you ever again.

randySeptember 11th, 2008 at 5:45 pm

Thank you for your response. I understand and agree with what you say. I do have a great family, friends, and faith community that has pulled me thru a large tragedy in my life 4 years ago. Ever since I started reading this blog (it has expanded to many others) my desire to understand the mechanics of what makes this country and the world for that matter tick has expanded greatly. I’ve read ,any books about the “coming financial collapse” trying to understand how to position myself to withstand it. My current book is called “The Creature from Jekyll Island” about the formation of the current Fed. It’s very scary because I get the feeling I’m doomed not matter what I do (financially speaking). I’m free of debt except for my house which will be paid for in 2-3 years. 2 kids college money ready and waiting. A little money in retirement (less than 500k). I’m 50.

GuestSeptember 11th, 2008 at 6:36 pm

McCain and his predisposition for all things military is what would worry me if I was fortunate to have children to be concerned over. I could not help but get the feeling he was thinking draft, as he smiled during his convention speech, while saying saying he would make sure Americans provide services to our nation.hlowe

Ho hum PeterJBSeptember 11th, 2008 at 5:05 pm

Is this any surprise, really?Fascism is the last stop of the cycle before and prior to War and destruction which includes depression. Fascism caries bells and whistles, gold coloured braids, medals, cocktail parties, black shinny boots and then… suddenly the party is over and in the morning, we don’t want to remember.Or, this is the last stop. That the UK follows suit is no surprise either as most of the Western countries have been tracking this way; the corporates in bed with “leadership” have taken over; your mileage may vary.Sad, but true.Roubini says this:”So, in conclusion the US does have indeed the most developed and sophisticated financial institutions, financial markets and financial instruments in the world. But size and depth and sophistication of financial intermediation have come at the cost of a very weak regulatory and supervisory regime that has fostered financial innovation but has not provided an appropriate regulatory and supervisory framework to ensure financial stability.”Or, IOW, mine, the world’s most advanced technology is in the hands of the most immoral, inept, self-serving groups of insane morons with absolutely no integrity whatsoever, which will do absolutely anything to safeguard and advance their “status quo”. These groups are faith-based in mentality and will impose their shilled ideologies upon anyone who stands in their way.As an awakened Banker, I suggest that you review the last page of Orwells’s 1984

KMoonSeptember 11th, 2008 at 9:41 pm

We’ll be fighting in the streetsWith our children at our feetAnd the morals that they worship will be goneAnd the men who spurred us onSit in judgement of all wrongThey decide and the shotgun sings the songI’ll tip my hat to the new constitutionTake a bow for the new revolutionSmile and grin at the change all around mePick up my guitar and playJust like yesterdayThen I’ll get on my knees and prayWe don’t get fooled againThe change, it had to comeWe knew it all alongWe were liberated from the foe, that’ allAnd the world looks just the sameAnd history ain’t changed’Cause the banners, they all flown in the next warI’ll tip my hat to the new constitutionTake a bow for the new revolutionSmile and grin at the change all around mePick up my guitar and playJust like yesterdayThen I’ll get on my knees and prayWe don’t get fooled againNo, no!I’ll move myself and my family asideIf we happen to be left half aliveI’ll get all my papers and smile at the skyFor I know that the hypnotized never lie

OldCodgerSeptember 12th, 2008 at 4:02 am

Saw them live in 1976 in Leicester. Absolutely fantastic performance. They played out on WGFAK Moon as mad as a hatter 🙂

MarkSeptember 12th, 2008 at 10:35 am

Reminds me of this from Dario Fo’s Accidental Death of an Anarchist:Do people demand a really just system? Well, we’ll arrange it so that they’ll be satisfied with one that’s a little less unjust … They want a revolution, and we’ll give them reforms — lots of reforms; we’ll drown them in reforms. Or rather, we’ll drown them in promises of reforms, because we’ll never give them real ones either!!

iwwSeptember 12th, 2008 at 7:42 pm

“Disaster Capitalism” at its best. Wait for a crisis to shove through the changes you’ve always wanted to make.We need to reform or get rid of these “reformers.”

AnonymousSeptember 12th, 2008 at 8:14 pm

@LBWhat can be done to stop this from happening? You seem resigned to the fact that it will happen..correct me if I am wrong.

GuestSeptember 11th, 2008 at 10:31 am

Asthonishing the US are in the sectors FINANCIAL INTERMEDIATION first or second and in CAPITAL ABILITY 8th.I can not believe it.

MarkSeptember 11th, 2008 at 10:37 am

@richinarTo me the solutions are here within our borders. Our infrastructure is in shambles. We must rebuild here at home and create long lasting jobs via infrastructure projects.[…]The government will lose its power if it can not fund its expenditures at some point. That point draws ever closer each day.We’re massively in debt. How can we afford to spend internally when we owe externally? Do we just tell the rest of the world: sorry, but we’re staying home from work, we’ve got things to do (but keep sending those paychecks!).Mark

Little SaverSeptember 11th, 2008 at 10:38 am

@ London BankerWith those proposals, average Joe and Jane will remain average, although at lower levels. This only sets Pandora’s box wider open, I guess. What to do about it?

richinarSeptember 11th, 2008 at 10:51 am

@ MarkThat and adapt to much different standards of living. I believe that to be the biggest challenge but it is coming regardless of what we do.

subgeniusSeptember 11th, 2008 at 11:08 am

The role will include comprehensive, global data collection which will give the Fed visibility of all open positions. In the wrong hands, this insight could be used to selectively induce volatility and margin calls which would selectively hurt some and advantage others. That could help the Fed’s friends over time.Some might say these powers are already being exercised… just look at the daily market moves against any kind of sense of reality…

GuestSeptember 11th, 2008 at 11:10 am

@LondonBankerLooks like the UK proposals will match the US ones.Its unbelievable.If this is the height of ‘financial sophistication’ I’m moving to Venezuela

AlessandroSeptember 11th, 2008 at 11:13 am

@martinthis sounds like an awful news, doesn’t it? Do you have idea of how to handle the fallout?#1 financial system in the world on sale for 2 bucks apiece.

Miss AmericaSeptember 11th, 2008 at 11:15 am

@ Martin…There game was “officially” up a couple of days ago… When perpetual motion started, there quickly became “NO ONE” on the other side of a deal with them. (Just as Bear, it was known in on the street.) That momentum is nearly impossible to break.Miss America

GuestSeptember 11th, 2008 at 11:19 am

The paradox of the US and UK being ranked top at a time when there is significant turmoil, weakness and vulnerabilities in their financial systems can be explained as follows:… …

OK, but in that case the report should not have been named “Financial Development Index and Report” but “Financial Innovativeness Index and Report”. It is useful for those who are looking for the most innovative place as an investment target, not necessarily the most financially healthy place. Of course then the question would be, what is the point with choosing an investment target just for the sake of its financial innovativess, if its economy is in shambles with no seeming end to the problems…?U.S. sure may be more financially developed than many (if not all) other countries, the problem is just that the development has not come to any sort of a conclusion and near term outlook is so uncertain that the country can be characterized as financially unstable.

GuestSeptember 11th, 2008 at 11:22 am

Lehman is going to be dead meat next. At this rate the only, hmmm, company doing financial business will be the U.S. Federal Government (thanks to them now merging with Fannie and Freddy)

MASeptember 11th, 2008 at 11:23 am

@ Martin1 more thing…Your thoughts on GS being a potential “buyer”??? (If nothing else, of the lucrative Neuberger part)Miss America

GuestSeptember 11th, 2008 at 11:26 am

The amount of player on the financial market in the US will be reduced until there are only government entities left.Then you get the solution advocated by Professor Roubini some time ago, with the government owning the mortgages. I bet it’s going to be a bit different from the current system…

MedicSeptember 11th, 2008 at 11:31 am

So if LEH gets 24 hours, that puts us into Friday – how many FDIC takeovers can they hide when LEH collapses?The thing in all of this that still amazes me is the lack of not only understanding, but of knowledge at all by the general population about what is happening and where we are headed.

MedicSeptember 12th, 2008 at 7:20 am

Many may know something is amiss, but too many lack the knowledge to appreciate the depth of the issues. This is no longer about just a few banks being in trouble and some people losing homes because they can’t afford them. This has now become about government actions that have changed the face of finance. This solvency crisis is what can, and I believe will, lead to an economic depression on a scale not seen here before. We have lived on credit for too long – not just citizens, but government as well. This will encompass everything now and no industry will be spared.Let’s look at just one example that I know all too well: Health care. Insurance companies losing money – that will lead to further decreases in medical reimbursements putting more pressure on a health care system already in trouble. Fix that with government money? Where will that come from when the government is broke?The current crisis will change life as we all know it – and likely not for the better as this spiral downward picks up speed.And as for the blissful American masses? While some may realize things are not quite right, most have no appreciation of the disaster that looms.That’s what happens when it serves the interests of government to keep the people uniformed and entertained.

AlessandroSeptember 11th, 2008 at 11:35 am

@Miss AmericaLEH is going, WM probably next, taking the FDIC with it, then WB and MER… do you see the Wall Street cronies still in control? Befause if this is control, I don’t want to see what is when they lose control!

samSeptember 12th, 2008 at 6:36 pm

lehman is not insured by the FDIC. The brokerage side has SIPC insurance which is a joke. Not a federal agency and only has maybe 1 1/2 billion to protect investors. everybody should read their SIPC insurance coverage agreement especially when all your stocks are not in youtr name but the streets. what a mess.

tutterfrutSeptember 11th, 2008 at 11:43 am

Anybody wants to sell me a thousand ounces of silver…at spot price?Here in Belgium there’s none to be found on the regular market.In France, according to bloggers, if any available, they sell at spot +50%.(Just take a look on eBay, internationally)The digital market has disconnected from the physical. At some point something has got to give. Should I try SLV(i-shares Silver Trust), and change for physical when(if ever again) both meet?

GuestSeptember 11th, 2008 at 11:46 am

From BeSpoke:Bad Analyst Call of the DayGoldman Sachs downgraded Lehman Brothers (LEH) from a Buy to a Neutral today. Yep, they had a Buy on the stock from $46 down to $5. After having a Neutral rating on Lehman from June 2006 through March 2008, Goldman decided to take a chance following the March lows and make a Buy call. It looks like they’re throwing in the towel on that call today.

GuestSeptember 11th, 2008 at 11:57 am

Chris Martenson:Fannie Raises $7 Billion in Largest Single Debt SaleSay, that sounds pretty favorable. “Largest single debt sale.” And there’s more good news, because they got a pretty good price – the best since June according to the article.But wait, what’s this?Asian investors bought 12 percent of the latest two-year debt issue, as European investors purchased 8 percent, down from 39 percent and 17 percent in the July sale, according to company data. Central banks bought 27 percent, down from 57 percent. The company yesterday failed to say how much debt it planned to raise in announcing the sale, a break from its typical practice.So central banks slipped from buying half of the GSE debt offerings of past sales to just a quarter? Hold on here…who bought the rest? I have a sneaking suspicion that the US government just purchased its first lot of ‘taxpayer specials.’

mumonkanSeptember 11th, 2008 at 12:07 pm

Sorry about that! if you were composing a comment while we did the site update a few minutes ago you probably lost it, as we have significantly updated comment posting.On the other hand, look–threaded comments!

tutterfrutSeptember 11th, 2008 at 12:04 pm

Wow professor this looks awesome. Does this software update enables us to trade derivatives and CDO’s with eachother?

2centsSeptember 11th, 2008 at 12:13 pm

Not sure we really want it this way? This is going to cause alot of people to miss new content!How about an automatic notation refering to the original post & time with each comment added at the end.

2centsSeptember 11th, 2008 at 12:05 pm

@ London Banker on 2008-09-11 10:27:14Wow! Why do we even hold elections? As we’ve known for centuries and currently observe, he who has the money has the power. Sounds like they are just tiddying up the laws to fit the actions.As for broad pre-emption, I think that will be the “shot heard around the nation”. Look for the muskets to come out shortly thereafter.

London BankerSeptember 11th, 2008 at 10:55 pm

Pre-emption has already happened in respect of federal banks – and no shots were fired. The states tried to impose state level restrictions on mortgage lending. The OCC fought it in the courts and won pre-emption. That’s why federal banks dominate today, and why the mortgage lending crisis is nationwide rather than just concentrated in corrupt states like Texas as it was in the 1980s. They’re now going to extend the federal pre-emption model to all financial services, and use the precedent of the OCC case as their bullet-proof shield of constitutionality with a GOP-appointed Supreme Court.

SoftwarengineerSeptember 11th, 2008 at 12:06 pm

WHERE’S THE WORLD ECONOMIC FORUM’S TECNOLOGICAL INNOVATION RANKINGS IN IT COMMUNICATIONS?America dropped from #1 in 2006 to #7 in 2007….I imagine were around #20 today?Isn’t coincidental and/or conspiratorial that WEF’s technology innovation rankings suddennly diappear when America looks horrifying [I feel its 2006/2007 degradation is directly a result of uncontrolled population growth in America]?

AlessandroSeptember 11th, 2008 at 12:07 pm

tutterfrutcheck out a few post from Mish on what is really scarce in the PM market. His point is that “retail” forms are scarce, not wholesale. Which may indicate that the hedgies are selling to the small investors. Not bullish.

AlessandroSeptember 11th, 2008 at 12:14 pm

CNBC: Lehman Now Seeks Buyer For Entire Firm: Sourceshttp://www.cnbc.com/id/26658460They just forget to say that they have 24h at it. LOL!

2centsSeptember 11th, 2008 at 12:16 pm

Beware of the new out of order (but threaded) content capability of the site update.Can we agree not to use threaded comments until we come up with a working set of rules on how to utilize this feature without making a mess of the content?

2centsSeptember 11th, 2008 at 12:23 pm

Oh blog master can we have the comments posted both ways? This is going to get crazy! Option to toggle the view etc.? Help, we need options!

London BankerSeptember 11th, 2008 at 3:11 pm

Relax. Threading is excellent. It allows for much better dialogue flow on common themes. I’m thrilled it’s finally arrived.

2centsSeptember 11th, 2008 at 10:38 pm

@ London BankerI love your financial insights, but I think you’ll find that this new feature is gonna exasperate most folks. I’d be surprised if you even get a chance to see this add to the thread.If you do see this, then add a new comment (non threaded) so as to let me know that you are actually going back and perusing the comments.

London BankerSeptember 11th, 2008 at 10:58 pm

@ 2centsI have seen your reply. One feature I like about the new threading is that I can just search down the page on my name and easily find and review replies to my comments when my time is short. At my leisure, I review all comments as usual.

tutterfrutSeptember 11th, 2008 at 12:21 pm

@AlessandroI’m following silver and Mish since long. It’s just that around this price level(7.5 euro) I just find it a reasonable investment for the loooong term. I have too much of the paper stuff. 🙂

GuestSeptember 11th, 2008 at 12:59 pm

The market is up today, just as the world is melting down. How predictable. Sometimes I wish the PPT would be a little more subtle!

GuestSeptember 11th, 2008 at 1:10 pm

No, what unreal is the fact that the VIX is UP 2.25% even though stocks are up! LOLOL The fraud being committed daily in the US markets is now becoming laughable!

GuestSeptember 11th, 2008 at 1:26 pm

LOLOL US Stocks have reversed some 250 points off the low this a.m.!!! WHY??? Miss Ascarica, what is going on-who is the player with all the cash at the lows every day?

AnonymousSeptember 11th, 2008 at 1:38 pm

The best form of technical analysis now is when really bad economic conditions and news are announced and it looks as if the unfolding credit crisis is getting worse, go LONG on equities!

GuestSeptember 11th, 2008 at 1:56 pm

Financial stocks have wiped out >4% losses this morning and now trade HIGHER! What am I missing here? How come global markets can plummet several % and the US market just can’t do that? I guess the market foalls under that new US montra “nobody loses” whether they deserve it doesn’t matter…

tutterfrutSeptember 11th, 2008 at 2:14 pm

“Lehman Brothers Is in Discussions With Potential Buyers as Shares Tumble”(Bloomberg)Maybe there in discussions with WaMu…

GuestSeptember 11th, 2008 at 2:16 pm

Bank & ThriftFASB CHANGES ADD UNCERTAINTY TO TUMULTUOUS M&A MARKET Changes to a Federal Accounting Standards Board rule pertaining to mergers and acquisitions will soon take effect, and based on early reports, the regulation is already sending shockwaves through the bank and thrift industry.Referenced Tickers: WM NCC9/11/2008 1:32 PM ET

GuestSeptember 11th, 2008 at 2:16 pm

Bank & Broker/DealerSENATE SUBCOMMITTEE REPORT TO DETAIL TAX EVASION SCHEME The Senate Permanent Subcommittee on Investigations is set to release a report detailing the methods used by some U.S. investment banks and brokerage firms to help foreign hedge fund investors dodge hundreds of billions of dollars in taxes on U.S. stock dividends.Referenced Tickers: C UBSN MS DBK MER LEH9/11/2008 11:21 AM ET

MarkSeptember 11th, 2008 at 3:39 pm

I have a feeling that this isn’t going to result in more $$ flowing into the USA… If they could only afford business at a discount (tax evasion), then it’s not likely they’ll be doing business at the full price.This just isn’t going to turn out well…Mark

GuestSeptember 11th, 2008 at 3:21 pm

@ Joe Average: “So in affect aren’t the liability for other peoples mortgages being indirectly, unvolunteerly, and unfairly placed on the tax payers… And if so do the tax payers get fair use of the assets they are paying for?” on 2008-09-10 15:57:21The power brokers who run America’s financial system have started the most aggressive financial moves in America’s history and these aggressive moves have not shown anything but that they are going to make our lives worse.You, Joe Average, are now going to finance, directly and indirectly, high-end housing for corporate America’s flood of incoming low-wage laborers competing for your job. It’s called Medicaid for housing. And you and your salary, Joe, are going to underwrite mortgage investment risk for Wall Street.We are not talking about warren-like government housing here, to the contrary. Many of the foreclosed houses that China’s central bankers and Bill Gross invested in, at no risk to themselves but certainly to you, cost up to $800,000 (or more) and were “sold” on the basis of no income, no credit, no down payment, no job documentation, and no proof of citizenship. And, of course, no enforcement of one-family residential restrictions.I live two counties from the highest foreclosure county in the nation. Billboards at that time lined the highways offering $5000 cash or more to “qualified buyers,” and mortgage rates of 3% and under. Cheaper than renting! An additional feature was and is reduced property taxes and subsidized utility bills for those who “qualifiy.”Builders, lenders, teachers’ unions, utilities, retailers, CEOs, debt-packagers, Wall Street, everybody with a finger in the pot, was happy…In contrast, I, a single male aged 31 in 2001 with a master’s degree in electrical engineering and employment at a top R&D firm, with excellent credit, no debts, and a 20% down payment in my pocket, needed the co-signatures of my parents to qualify for a $620,000 in San Jose where the median price in 2000 was $537,550. The house I “bought” still had its original 1926 kitchen and bath fixtures and had been used as a rental for years. It was five rooms and one-bath squeezed into 1200 square feet, but sat in a decent neighborhood.After rate shopping, my best bet was a fixed interest rate of 8% with a points payment of $12,000 (I have since refinanced). My “Prop 13” property taxes touched $8,000 a year and now have surpassed $9,000. For 7 years I have been a house-poor homeowner.You ask, Joe, “do the tax payers get fair use of the assets (other people’s mortgages) they are paying for?” Well, I guess you do, Joe: you get to use a great deal more of your time paying for them.

Joe AverageSeptember 11th, 2008 at 5:08 pm

I don’t understand your last sentence, guest.______________________Mortgages aren’t assets they are liabilities.Tax payers, if forced to make partial payments which go indirectly to (some) others mortgages (liabilities), they they should have fair use of that part of the assets (real estate and housing).Plus a premium for the inconvience, illiquidity, and loss of opportunity.

GuestSeptember 11th, 2008 at 5:50 pm

Just a facetious remark meaning we taxpayers don’t get anything from the Fannie-Freddie bailout, except more out-of-pocket deductions from our paychecks, ie forced labor from me that enriches someone else at my expense. In order to make this criminal plunder appear just and sacred, Paulson and the Congress sanctioned it by law. Unfortunately, as Bastiat points out: “Slavery, restrictions, and monopoly find defenders not only among those who profit from them but also among those who suffer from them.” But the good news is, that number grows smaller and smaller every day.

MarcusSeptember 12th, 2008 at 11:13 pm

Yeah, I feel your pain, Guest. I’m also an engineer by training, and one of those rare breeds in the USA (a Saver), but my wife and I are also getting hosed. As Zimbabwenomics kicks in, with hyperinflation as the “solution” to our debts, those of us who actually live sensibly are the ones who get screwed.A rapidly growing number of my engineer colleagues are emigrating from the USA, they’re just too fed up with this mess. The ones with Asian background (mostly Chinese and Koreans) are largely going to those countries now. But a decent number of the native-born engineers are emigrating to Europe– mostly to Germany and its neighbors like Austria and Switzerland (which I guess are still global tech hubs), Italy, France, Finland, Denmark. A few even to South America, which has some surprisingly nice cities in Chile, Brazil, Paraguay and so forth. (Britain OTOH is a cesspool even worse and more crowded than the USA, nobody seems interested in going there or to Australia.)Come to think of it, I don’t blame them, and I’m wondering why any bright young adult, with real prospects, would stay in the United States anymore. Among developed countries, our quality-of-life stinks, living in this budding fascist plutocracy like this. Our schools are crap and a parent will go bankrupt paying for their kids’ education (in high school, let alone in college and grad school as loans shrivel up). Our infrastructure is sinking to third-world level, and our health-care system is medieval in its costs.My old friends in Germany OTOH, the public schools there are the best in the world, all the way through grad school, so his kids are in great shape and he doesn’t even have to dip into his pockets to educate them. Infrastructure and health care are awesome, much better managed. There’s just a much better grounding and sense of community there. I mean really, outside of the minor inconvenience of learning some German (and some French if you’re moving there), seems like a much better place to be living and raising a family. Or honestly, in Asia if someone has ancestry there, or in South America in some of the nice cities. USA is fast becoming worse than a banana republic.

GuestSeptember 11th, 2008 at 3:26 pm

“When a whole nation is roaring patriotism at the top of its voice, I am fain to explore the cleanness of its hands and the purity of its heart.” Emerson

GuestSeptember 11th, 2008 at 4:44 pm

Great quote, and right to the point. I am expecting the attack on Iran either just before or just after the election. Either way, it pre-empts careful counting of the votes or questioning of those in authority.

GuestSeptember 11th, 2008 at 4:14 pm

USA cost of borrowing must skyrocketThe value of the dollar must plummet (it is a debt obligation, just deeply diluted)Bank failures will destroy tremendous value and MUST fail ruining equity holders and impairing debt holders, OR be fully backstopped by federal government which will zombify any ability to transact and further exacerbate above.We are at a critical crossroads. I believe activity tomorrow or over the weekend may well define a generation’s economic future.

Ho hum PeterJBSeptember 11th, 2008 at 4:34 pm

Speaking of opinions on Russia and its place in global affairs:”A sensible alternative is the Gorbachev vision rejected by Clinton and undermined by Bush. Sane advice along these lines has recently been given by former Israeli Foreign Minister and historian Shlomo ben-Ami, writing in the Beirut Daily Star: “Russia must seek genuine strategic partnership with the US, and the latter must understand that, when excluded and despised, Russia can be a major global spoiler. Ignored and humiliated by the US since the Cold War ended, Russia needs integration into a new global order that respects its interests as a resurgent power, not an anti-Western strategy of confrontation.”Noam Chomsky is professor at the Massachusetts Institute of Technology

kilgoresSeptember 11th, 2008 at 7:26 pm

Noam Chomsky is a professor of linguistics. Several years ago, I saw a show on PBS about a project to teach language to chimps using signing. One of the star pupils was dubbed “Nim Chimpsky.” Ever since, whenever I hear or read Chomsky’s name, all I hear in my head is “Nim Chimpsky.”SWK

MASHIACH BEN CHANASeptember 12th, 2008 at 12:46 am

USA DID NOT HUMILIATED RUSSIARUSSIA HUMILIATED USA. SPITTING ON ITS FACE.AS I WROTE PREVIOUSLY. WHEN RUSSIA ALMOST WENT ON DEFAULT, DURING Russian financial crisis IN 1998 PROFESSOR RUBINI WAS ECONOMIC ADVISER TO PRESIDENT CLINTON HE ORCHESTRATED VIA IMF, WORLD BANK ,AND US TREASURY TO RESCUE RUSSIA FROM BANKRUPTCY, USA CAME TO THE RESCUE OF HER ENEMY, RUSSIA FIRST HAVE TO THANK PROFESSOR RUBINI AND THEN USA. I WANT TO SEE IF USA, AMERICA GOES ON DEFAULT ANY NATION IN THE WORLD WILL COME TO ITS RESCUE. NONE. NO ONE.

GuestSeptember 11th, 2008 at 4:58 pm

@ London Banker: “I was briefed on the proposed US financial reforms which will be shoved through with minimal review. Short version is that the Fed wins an explicit “financial stability” role which gives it powers and secrecy to do pretty well whatever…”We must never make the fatal error of assuming that all Americans are morons. They are not. It is never the masses that forge political changes; it is always the ten percent at the extreme ends. And so, we must “beat on, boats against the current…” because Roubini and this forum are making a difference.The “financial reforms” that London Banker has revealed is proof that America’s financial brokers are in extremely serious entanglements around the world and that the only way they can handle their losses is in one of three ways:1. Cover them up so no one can see them,2. Misrepresent them as non-losses or changes,3. Move money from other sources into their accounts to cover their problems.The financial cartel’s idea is to hide what it is doing. It has the authority to do so, thanks to the U. S. Congress that has handed it the full use of the U.S. Treasury. But, it has a problem with its foreign entanglements and with private institutions, such as, say, a private bank in Massachusetts or, say, the government of China – it doesn’t have enough money in the Treasury to handle it all.America’s economic system is at that point where it can’t go any further: the country is in recession with inflation and war raging, with serious unemployment and a gutted industrial base, with unsustainable debt and emerging markets competing for resources – all at the same time.Power grab “reforms” of the magnitude of those exposed by London Banker today are creating a chance for revolution: to put all this additional authority into the hands of the Fed won’t fly. Lehman is down 42% today. Because of Bear Stearns and Freddie and Fannie, America’s banking cartel system is headed into a crevice, facing total meltdown of its integrity, resources and power. These are bold, terrible moves.They seem to be in a big hurry to seal this final financial grab while Paulson is still in office. Could it be that TPTB fear they may have a problem with Obama?

AfASeptember 11th, 2008 at 5:09 pm

Wait folks! You lost me. My head is spinning.How could we make posts topic-centered but still know when a new post is added without having to go over all discussion again and again?We need ideasR&D center

GuestSeptember 11th, 2008 at 6:06 pm

I agree. Half of the comments are going to be lost to most readers because who has the time to run up and down this blog? If something really needs responding to, it seems best to keep it away from all the chatting or it will be overlooked.

AnonymousSeptember 11th, 2008 at 6:18 pm

Ditto. I don’t come here to chat. I am no good at chatting. I come here to learn. This re-ordering seems to make that more difficult.

TfTSeptember 11th, 2008 at 8:30 pm

Before the threading change here, it seems to me that the community here works out a way to reply to others’ comments clearly in time sequence. I do agree with AfA’s comment- the current approach consolidates posts with the same thread but loses the posting sequence. As someone has mentioned above, I think it may be worth trying that the comments are still handled in the sequence as they are posted. Then change the ‘Reply to this comment’ to automatically add link to the replied post in the form “Reply to XYZ on 2008-09-11 12:34:56” as well as adding the reply at the end of the original post with a link. The italic part is the link to the original post. Blogger wants to quote others’ comment can still use the provided ‘blockquote’ tag. For example (as it appears),Post 1blah…By x1 on 2008-09-11 01:00:00 Reply to this commentReplied by x3 on 2008-09-11 03:00:00Post 2blah blah…By x2 on 2008-09-11 02:00:00 Reply to this commentPost 3Reply to x1 on 2008-09-11 01:00:00blah blah blah…By x3 on 2008-09-11 03:00:00 Reply to this commentReplied by x1 on 2008-09-11 04:00:00Post 4Reply to x3 on 2008-09-11 03:00:00blah blah blah blah…By x1 on 2008-09-11 04:00:00 Reply to this commentThis approach:* preserve the time line of posting (easy to read in time sequence)* easy to reference back and forthTechnically, this is feasible and my guess it may be OK to do with the current technical implementation (since you already reference one post to another).Sorry for the long (off-topic) post. Can’t help from a UI technical perspective. By the way, user feedbacks usually are important to UI design though it is impossible to please every user.By the way, this is also my first post here. 😉

PhilTSeptember 11th, 2008 at 8:57 pm

Tft – Bravo !If only the Fed, Treasury, etc. could perform such precise and clear analysis of a situation and then articulate a thoughtful solution and present it as well as you have done here … Well … wouldn’t we all be better off ?Appreciatively…

PhilTSeptember 12th, 2008 at 8:42 pm

To the BLOG MASTER et al…Everything was working as well as can be expected regarding your software changes for blog interaction. But at some point on Friday afternoon, the screen size of the website as viewed through my Firefox Browser(v. 2.0.0.16)under Win X/P, has increased in width to nearly double the normal screen width. Am I the only person experiencing this problem?Please advise.Sincerely,

imALLoutOFloveSeptember 11th, 2008 at 8:04 pm

why am i having reruns of skeeter davis singing in my head??LB i hope your job is recession/depressionproofhttp://www.guardian.co.uk/business/2008/sep/11/recession.unemploymentdata’Tens of thousands to be laid off every week’ as UK falls into recessionMPC member warns of ‘horrible surprise’Gloomy assessment sends London shares fallingAll comments () Graeme Wearden guardian.co.uk, Thursday September 11 2008 12:09 BST Tens of thousands of people could be laid off every week in the run-up to Christmas as the UK economy falls into recession, David Blanchflower of the Bank of England’s monetary policy committee warned today.Blanchflower told MPs to expect “a large increase in unemployment”, and warned that a “horrible surprise” could be just around the corner. The gloomy assessment sent shares in London falling, and also weakened sterling yet further against the dollar.Blanchflower, who has repeatedly tried and failed in recent months to persuade the MPC to cut interest rates, predicted that the unemployment count will rise by 60,000 a month for several months in a row, probably starting in October.”I believe we will see a deeper economic decline than other people think,” Blanchflower told the Treasury select committee, ruling out the possibility that the UK GDP will not shrink.

2centsSeptember 11th, 2008 at 10:46 pm

The pattern is to beg, borrow and steal from the citizens during the week. Come weekend, ask for forgiveness, money and taxpayer support.How many of you think Lehman should be added to the Federal support group?

GuestSeptember 11th, 2008 at 10:47 pm

How many insurance policies do you hold on your home? on your vehicle? Why would anyone hold more than one with a sufficient counter-party if the entire entity and collateral damages could be covered by one?The CDS market became a gambling arena where counter-parties weren’t fully vetted as to creditworthiness or solvency, and where layer upon multiplied layer of insurance buyers/writers simply placed bets on whether a company would stay solvent. It created a terrible incentive in cases for parties to actively seek the economic demise of the insured entity in order to trigger insurance coverage which far outweighed the gains of a winning company’s cash flow.It also had an even sinister outcome. Instead of allocating risk to those who could most ably bear it, it energized the worst sort of risk-seeking behavior. Writers/insurers who were so self-sure of the inevitable outcome that they never considered the “black swan” outlier…and who were in no position to take either position. Like much of the modern financial system, they were either highly leveraged or paper trading without real reserves of capital to take positions.And so many parties played the game and took opposing gambles that now our financial system CANNOT be allowed to fail. They have cobbled together such a network of liabilities that it is more systemically deteriorative to simply allow a company to fail than it is to socialize it through the USA free enterprise system and gov’t. Doing the right thing (allowing failure for mistakes and bad management) is more destructive of the golden goose than the abject corruption of burdening innocents with the risks and debt. Such a design that the WORST outcome (for the rights, privileges, and freedoms of the people) MUST be adopted, and the natural and right outcome avoided at every cost. The SYSTEM depends upon it.It is like a great light and true knowledge that must be snuffed out to preserve the status quo. A Grand Inquisitor of Dostoevsky. It will despoil entirely the tower of finance and all it serves. It has destroyed the free will and compelled corruption of one of the finest political experiments this world may never remember in a few generations. Lucifer himself would be delighted! How best to burden your neighbors with your sins and escape punishment? Welcome to the global financial debacle.

AchesonSeptember 11th, 2008 at 10:49 pm

If what London Banker has been told actually occurs, two questions:1. Wouldn’t Congress and the States throw a hissy fit?and2. More immediately, would the “markets” like it?p.s. sorry if I’m not threading properly

London BankerSeptember 11th, 2008 at 11:12 pm

There are only a handful of congressmen who need to be brought on board for the rest to follow. The “crisis” will be the justification for rapid action to “strengthen” the powers of the Fed to restore “financial stability” and prevent further damage to the financial sector and real economy.Think about the America we see today (no habeus corpus, torture, war without the Geneva Conventions, corporate owned media, etc.) as an extrapolation of 9-11. Think about the crony capitalist-owned regulatory system with all its abuse as the outcome of the financial crisis. Fear leads to bad decisions that cause more real harm to the fabric of the economy and society than the thing feared. That is why Roosevelt warned against fear as an influence on decision making in time of crisis. By contrast, the past 7 years have seen our leaders inflaming fear to justify bad decisions.

GuestSeptember 11th, 2008 at 11:24 pm

Thank you LB. Scary. But how can we still have “markets” under those circumstances? How would anyone feel comfortable investing in anything?

GuestSeptember 11th, 2008 at 11:24 pm

Thank you LB. Scary. But how can we still have “markets” under those circumstances? How would anyone feel comfortable investing in anything?

K in TXSeptember 12th, 2008 at 9:48 am

Sounds like the shock doctrine being applied. In times of crisis the wealthy and powerful seize advantage for themselves under the guise of rescue.

StormySeptember 11th, 2008 at 11:25 pm

Professor Roubini,Your post comparing over-regulated conservative regimes v innovative regimes sound like the race between tortoise and the hare. In the race I envision, the hare crashes into a boulder when he tries to take a shortcut; the tortoise wins the race.Frankly, I am having a hard time squaring your “results”–U.S. #1–with many of your prior posts. You may be surprised at the results; I am surprised at the discrepancy between your prior posts and the results. Looks to me like you managed to square the circle.The amount of money that is being now being sucked out of the U.S. financial system reminds me of a leaking gas-filled balloon: If you get to close to it, you might be blown to smithereens. What glory it is to be #1: You go out with a bang.

fedwatcherSeptember 12th, 2008 at 1:13 am

Dr. Roubini,As I understand it we in the US and the Crown in the UK allowed 100% loan to value in the US and 125% loan to value in the UK. We then both sliced and diced these loans and called the AAA+.We then sold this toxic waste to teachers retirement funds around the globe, other banks around the globe, and of course to other central banks.For the “briliant” financial engineering we did, which has brought the world financial system to the brink of a total melt down, you award us an A+.I grade both with an F.

ArmchairSeptember 12th, 2008 at 1:26 am

Of the BRIC nations China was tops at 24 and Brazil was at 40. The NYT had a great article recently about how Brazil’s economy is geared toward domestic consumption, even while they have robust exports. They even have untapped oil resources according to the article. Brazil clearly lacks financial maturity, but life in Brazil seems so much more hopeful, and enjoyable. Maybe this is the same sense of things that London Banker had in South Africa. Being number one on the list may also mean you’re number one in migraine headaches. I know I’m getting a headache trying to understand Fannie and Freddie and how they relate to treasury bills. Samba!

K in TXSeptember 12th, 2008 at 10:00 am

Sounds like developmentalism…perhaps my favorite ism. Beats lassiez-faire capitalism and real world socialism if you are one of the little guys.

FRIEND OF WASHINGTON MUTUALSeptember 12th, 2008 at 1:29 am

Posted by: Anthony M. Freed | September 11, 2008Why Lehman Brothers Will Survive and WaMu Won’tAs the markets continue to settle in the wake of the Lehman Brothers announcement that they are more or less running on capital fumes at this point, many theories are being proffered in the media that are predicting everything from a Buyout for Lehman (the theory I still support based on a confidential source) to the ridiculous notion that Lehman will be Sacrificed by the Feds in an effort to send a message to the Markets that no one can rely on there being a Federal safety net in the case of another Bear Stearns-like failure.I say ridiculous because it will not be Lehman Brothers who will be asked to make the ultimate sacrifice soon – Washington Mutual will. The difference between Lehman and WaMu (besides the fact that one is an investment bank and one is a thrift, a designation that would seem to matter very little when they are basically suffering from the same disease) is what will be left of them respectively when their stocks go to junk here soon.Lehman Brothers true value is not written in the days stock price, but in the long term value of it’s investment arm Neuberger Berman. Even a de-listed Lehman will have viable market value in the billions that would be snapped up by all number of interested parties – as evidenced by the hyperactive rumor mongering that has surrounded Lehman bothers fate for weeks.The advantage to the interested parties in waiting for Lehman to run out of rope on its own is the prospect that the Feds will jump in at that point and ante-up the bulk of the financing upfront – like the sweetheart deal Jamie Dimon and JP Morgan got on Bear Stearns.The JP Morgan – Bear Stearns deal was the tell tale sign that the Feds have already decided who they will support through a crisis of liquidity and who they will allow to fail – only those institutions that will maintain a level of marketable viability in the aftermath of the housing bubble will be saved.Bear Stearns was saddled with the same toxic MBS garbage that is killing Lehman and WaMu. And Lehman – like Bear Stearns but unlike WaMu – has something that others would want regardless of the fate of their rapidly decomposing commercial mortgage portfolio – namely Neuberger Berman – a division that is still highly profitable and structured in such a way within Lehman that it’s value and operations can be rescued from the rest of the troubled company.Any deal that ended up in the unwinding of Lehman and Neuberger would leave the mammoth problem of what to do with the mounting losses being accrued by their commercial loan portfolio, which was heavily leveraged while being wildly over-valued at the peak of the housing bubble, so much so that some analysts estimate it only reach a fraction of its peak market value in an economic recovery.Regardless, the anticipated value of the commercial portfolio, which is said to be made up of some very strategically located properties, will ultimately prove to be enough and will not derail a deal for Lehman Brothers in the end, even if it is not the winning deal CEO Dick Fuld is working for, and even if the Feds doesn’t throw in any money in the end.How is WaMu different, and why will they be left to fail?Well, when WaMu’s stock goes to zero, it really means the company is worth squat. They are overwhelmed with mounting losses in their own portfolios – residential and commercial – and these losses will have them cutting back on the services and storefronts that are their only gateway to sorely needed revenues.When the credit crisis first began to reach the consciousness of the mainstream press in August of 2007, some analysts – including myself – had almost no doubt that JP Morgan was going to swoop in on WaMu as soon as their rapidly falling stock value reached $10.JP Morgan had been on a full-court press acquiring smaller institutions in an effort to expand their retail footprint with already established storefronts. Bank One is the poster child. I was under the impression that Q1-08 earnings would thrust WaMu’s stock below that $10 marks, and that would be when JP Morgan would strike.Problem was every one thought something like this was on the horizon for WaMu, and the stock bounced around in the mid-teens for some time. Heck, just the prospect that Jamie Dimon was still shopping for new opportunities propped up several other troubled stocks like Indy Mac and National City too.But when the Bear Stearns deal was announced, it was like the rug was yanked out from under them all. And since the Bear deal, I have not heard even a hint of a rumor that any deal is possible for any of the three but National City – perhaps. We already know what happened to Indy Mac Federal Bank.So what now WaMu? They are closing branches and writing CD’s at rates they will never be able to honor at payout in a desperate effort to stay raise afloat. The CEO was canned, they have been treading water since March, and there is no ships-smoke on the horizon.Don’t look for JP Morgan, Goldman Sachs and others to voice support for WaMu in the press like they are for Lehman.WaMu has been carrying the overhead on too many storefronts from there meteoric assent to the national bank scene. But their rapid expansion and excessive bad bets on mortgage loans have left their retail banking operations unable to sustain the weight of WaMu’s losses for much longer.And why wouldn’t JP Morgan or the like want to gobble up WaMu? My contact at WaMu claims it is their Home Equity portfolio that is the poison pill no one wants to swallow.My source, who holds a position at WaMu that requires an understanding of WaMu’s portfolioed assets, states that WaMu is so over-extended on their Home Equity commitments accumulated through purchase money seconds, piggy-backs, HELOCs and HELO’s during the bubble that my source anticipates there will be no opportunity to recover.The short term goodwill generated by offering 5% CDs will not be enough to compensate for the inevitable cuts to services and their availability to customers, the source said.Closing unutilized HELOCs on customers who do not represent credit risks just to pretty up a balance sheet soiled by subprime carnage is no way to keep your best customers happy. It is probably something of an insult.Toss in the anticipated end to the WaMu goodies that made them a household name in American banks, like free checking and higher than average yield savings accounts and CDs, and there is very little left for WaMu to differentiate themselves from any other mainstream bank.Hence, no rumors of foreign banks or private equity rescues for WaMu. And don’t hold your breath for the feds to throw bad money after bad either – they have their eyes on the survivors and are looking long term – regardless of how reckless and impulsive their actions on Bear Sterns seemed – they have their chosen few, and WaMu ain’t on the list.Ultimately, somehow I am sure it will be the taxpayers who will foot the bill for WaMu’s reckless assent. Isn’t is always?We can expect a few more big names in there, I am sure – but Lehman will not be one of them. Nor will Merrill Lynch in the end, or any other financial that has solid non-mortgage related value, regardless of how bad their portfolios look.So, now you know when Lehman and WaMu stock go to zero, Lehman (and the like) will survive and WaMu (and most thrifts) will go down hard S&L style.It’s not that everyone doesn’t want WaMu to make it, it’s that in the end, the bottom line says it is just not worth it.WASHINGTON MUTUAL BANKRUPT WASHINGTON MUTUAL BANKRUPTGO BABY GO BABY GO GO.

GuestSeptember 12th, 2008 at 3:19 pm

Pardon me, but if I were going bust with massive debt, and I had a valuable asset such as a Neuberger Berman, you and I know that the bank would step in and acquire that asset to pay off my debts, not step in and provide me with free money from the Federal Reserve and arrange a private sale so I could personally benefit and then dump my losses on the public. Lehman is just another true story on what it means to be well connected to Big Daddy Fed. It’s all in the family. That’s why Lehman Brothers will survive and WaMu won’t.

Alessandro - http://castellidicarte.blogspot.com/September 12th, 2008 at 5:19 am

@martin, Miss AmericaI hear rumors that the deal can’t be done. Is that accurate? What next?

MASeptember 12th, 2008 at 11:53 am

If I were a betting man (which I’m not), I’d up the odds of a foreign (asian) purchase at a price between 4-8. …with provisions and backstops writen in.Miss America

Alessandro - http://castellidicarte.blogspot.com/September 12th, 2008 at 1:11 pm

But Paulson said to the MSM in no ambiguous words: “no more taxpayer money”…never mind.

GuestSeptember 12th, 2008 at 5:22 am

China may cut its dollar holdings – CICC(China Daily)China, which holds a fifth of its currency reserves in Fannie Mae and Freddie Mac debt, may cut the portion held in US dollars, according to China International Capital Corp (CICC), one of the nation’s biggest investment banks.The US government this week seized control of the two mortgage-finance companies, which account for almost half of the home-loan market in the world’s biggest economy, to prevent defaults from crippling them. China holds up to $400 billion in the two firms’ debt, CICC Chief Economist Ha Jiming said in a report Thursday.”The crisis has made Chinese officials realize it’s a bad idea to put all their eggs in one basket,” wrote Hong Kong-based Ha. “This will likely lead to greater diversification of foreign exchange reserve investments.”China held $447.5 billion of US agency bonds as of June 2008, according to the CICC calculations using disclosures by the US Treasury. It is likely to reduce the portion of reserves in dollar assets from the current 60 percent by purchasing more non-dollar assets with new reserves, he said.Countries in Asia have stockpiled foreign exchange reserves since the 1997-98 financial crisis to act as a cushion against a run on their exchange rates. That in turn has increased pressure on policymakers to ensure higher returns from more than $4 trillion in assets.China will expand its investments in corporate bonds and equities, according to Ha. Treasury and agency bonds account for 50 percent and 40 percent of total dollar assets held by the central bank, he wrote.http://www.chinadaily.com.cn/china/2008-09/12/content_7020656.htm

GuestSeptember 12th, 2008 at 5:25 am

The enormous gap between what the governments of US and UK do in the world and what their people think that their governments are doing is one of the great propaganda accomplishments.

GuestSeptember 12th, 2008 at 5:36 am

U.S. missile attack in Pakistan kills 14ISLAMABAD (Reuters) – Fourteen people were killed in the northwestern Pakistani region of North Waziristan on Friday in a missile attack by a pilotless U.S. aircraft on suspected militants near the Afghan border, security officials said.The strike, near the town of Miranshah, was the first since a recent surge in tension between Pakistan and the United States over how to tackle the Taliban and al Qaeda on the Pakistani side of the border…..New day, new war.America should declare war to the whole world.They are all terrorists anyway.

Alessandro - http://castellidicarte.blogspot.com/September 12th, 2008 at 5:58 am

BTW, for empathy with our bigger friend, Italy is busy squandering borrowed taxpayer money by nationalizing the failed national airline Alitalia, firm that is not profitable since several years and has no credible business plan.Anyway the nationalization deal is on the verge of collapse due to unions not liking it.http://www.bloomberg.com/apps/news?pid=20601087&sid=aNX7RhOarbS4&refer=homeIf it’s a public debt race, Italy is number one!

Alessandro - http://castellidicarte.blogspot.com/September 12th, 2008 at 7:18 am

They have as many principles as any other elite, none that is. It’s just that they can’t see a thing beyond their nose.

PeterJBSeptember 12th, 2008 at 6:43 am

Speaking of incompetence and stupidity; may I also add the end of the USA as the bastion of freedom to the whole World; as we have warmly known it?”What should have happened in 1929 is precisely what should happen now. Let the price system prevail! The government should completely remove itself from the course of action and let the market reevaluate resource values. That means bankruptcies, yes. That means bank closures, yes. But these are part of the capitalistic system. They are part of the free-market economy. What is regrettable is not the readjustment process, but that the process was ever made necessary by the preceding interventions.”http://mises.org/story/3104What I find most interesting is that these persons that have done this dreadful deed of destroying the USA – were actually brought up in American and enjoyed, indeed suckled of the teat of the US Liberty and Justice ideals of the US Constitution – and in utter disdain; in total dishonest academic application; in total cowardice, shred the legacy that was the greatest written qualitative accomplishment (The Constitution of the United States of America) of humanity since the Pharonic Empire of Ancient Egypt.This F&F decision could have been made by any idiot; that is to say, it didn’t need a PhD in glorified economics specializing in the Great Depression to reach this act of historic betrayal. Mr. Benanke will now go down – rightly -in history, as the perpetrator of the greatest betrayal in American History.Ho hum

philSeptember 12th, 2008 at 11:13 am

PeterJB, I appreciate many of your posts, but don’t you think this is a bit over the top?The US Constitution is an admirable document, as are American ideals, but it has been largely ignored since it was written. American History is full of betrayals, this wont warrant a footnote I’m afraid, especially coming in the shadow of the Iraq War.This is finance. It is about money and power, and it always has been.

GuestSeptember 12th, 2008 at 3:59 pm

I agree, PeterJB. Such are the acts of a treasonous private gang of financial criminals. This frenzy of open thievery and embezzlement of private funds by billionaire financiers while Congress holds open the doors reminds me of the Watts Riots. They got so violent and dangerous that even the police left while the plunderers looted, vandalized, destroyed, set fires — grabbing tv sets, furniture, food, appliances, clothing…anything transportable — and ultimately threatening the security of the entire city. It cost 40 million dollars in damage.The current ravaging of Main Street is costing Americans trillions.

PeterJBSeptember 12th, 2008 at 5:03 pm

Phil and Guest (above) Thank you for your comments but I tend to disagree with the final analysis in which you obviously find despair.Firstly I believe that most men are good and that the human spirit is infinite in possibility – and should be allowed to soar only limited by qualitative constraints.Secondly, the US Constitution is not only a remarkable document but it is a profound expression of an intellectual socio-economic system based in experience, science and intellect; it is unique.Thirdly, power corrupts and produces greed, avarice, and applied crasse stupidity; etc., etc.Fourthly, I believe that “economics” is treated as a faith-based” religion, complete with ritual, superstition, dogma, priests, high priests, pope and warrior priests; it is a religion that needs support to ensure that it stands; as do all religions or “faith-based” systems.And lastly, for the moment, faith-based belief systems don’t work; physics works as physics is the science of how things work. The Laws of Physics are inviolate where you cannot make something out of nothing (ex nihilo).The US Constitution is not a “faith-based” economic system and it allowed the human spirit to soar as is well in evidence. And, no, it only took a short interval until the shredding of this Declaration of the human spirit to something out of which the Constitution and hence the USA was borne.However, the US has some of the greatest and finest Universities and learning Institution in the World; the greatest technologies the greatest of all expressions of human advances yet, the peoples of this great Nation, have allowed the emotionally bent, faith-based system to dominate and destroy, rather than to lean towards its intellect and historical creation.In conclusion to this response then, it is not private gangs or financial criminals per se, the problem rises from the corrupted human spirit that has fed at the consensual trough of faith-based dostorition of a sound socio-economic system that has resulted in a total distortion of accord and logic in favour of even, that distorted system of factional reserve banking.In other words, to point, Mr. Benanke should have known this but his actions have been in favour of the status quo and the continuity of destruction of the free-market system which the US Constitution originally granted and declared.Mr. Benanke just concede that which the banking and financial industries lobbys’ demanded and granted the continuance of decay of the American system. Sadly. FYI I am not an American citizen.The USA was once the greatest Nation on this and could be again, if an only if, it can get back to the correct fundamentals of a non faith-based socio-economic systems and then all these persons that you both depict as criminal would be constrained in their soaring the possibility and would becomes, instead, hero’s.Ho hum

DC bankerSeptember 12th, 2008 at 7:47 am

This is like a beauty contest. The most beautiful girl is not necessarily the smartest one. As there is a trade-off between financial development and stability, there is a tradeoff between beauty and brain? If you want to marry them, I guess you are not going to marry the most beuatiful but brainless.

GuestSeptember 12th, 2008 at 10:19 am

LOLOL once again, any sell off in US markets, no matter how bad the news, is not allowed by Hank!! I guess ‘Ol Hanknow runs the US-what President? What Congress? It is Hank and only Hank and when hank picks up the phone and tells Goldman enough is enough, the listen!

GuestSeptember 12th, 2008 at 10:19 am

LOLOL once again, any sell off in US markets, no matter how bad the news, is not allowed by Hank!! I guess ‘Ol Hanknow runs the US-what President? What Congress? It is Hank and only Hank and when hank picks up the phone and tells Goldman enough is enough, the listen!

Total LoyalistSeptember 12th, 2008 at 10:49 am

You have to understand Hank’s position. His job is to punt the problem up the road until it’s the next presidents problem. Otherwise it might embarrass President Bush and, god forbid, tarnish his legacy. Thats the policy.

GuestSeptember 12th, 2008 at 4:21 pm

Hank’s position? His job? Punt the problem? I’m sorry but this reminds me of Yves Smith calling Henry Paulson Jr.– past CEO of Goldman Sachs cum Secretary of the U.S. Treasury who rules US finances with no oversight from Congress and who without question is Economy Enemy Number One controlling more of the world’s wealth and private economic power than most nations combined — a toady! Congress and Bush are the toadies who lick the boots of their Fed masters.

randySeptember 12th, 2008 at 10:31 am

@LBI know you’re well connected in the banking industry and I’ve asked this question on this blog and many others many times to no avail.How can TPTB (PPT) keep goosing the markets to keep them from crashing?????? Whos money are they using????Is has to be real $$ doesn’t it??? How many times can the PD’s that are working with the fed and TR buy indices to goose the markets????? Can this go on forever????

GuestSeptember 12th, 2008 at 4:28 pm

I know your comment is tongue-in-cheek, WAWAMU. But I thought it worth repeating that the voting members of the President’s Working Group (PWG) on Financial Markets, colloquially known as the PPT, established by Executive Order 12631, consist of:· The Secretary of the Treasury, or his designee, i.e. HANK PAULSON — CHAIRMAN of the PWG· The Chairman of the Board of Governors of the Federal Reserve System, or his designee, i.e. BEN BERNANKE· The Chairman of the Securities and Exchange Commission, or his designee, i.e. CHRIS COX, and· The Chairman of the Commodity Futures Trading Commission, i.e. BART CHILTON, or his designee.

GuestSeptember 12th, 2008 at 10:43 am

Gonna have a great manipulation/interventionist run, but just making worse the inevitable. Ike is gonna gut Texas and its energy complex. The weekend will have all the foreigners plotting to pull out of Treasuries and dollar. Hedge funds are going to be blowing up big next week. Shorts are only trading against the government innovative interventions now. LEH and WaMu are very dead. FDIC is dead. Taxpayer tab is too bloated for any foreign creditor to maintain a straight face. Event driven crises are becoming too time compressed to even attempt financial triage. CDS fall out from GSE and two massive banks failing in a week will introduce a new havoc and level of complexity.In short, the hurricane on the coast is foreshadowing in the material world a much larger and catastrophic storm in the global markets. Did we orchestrate IKE by selfishly polluting our own world? Dunno. But we absolutely orchestrated this economic storm surge with selfish and distracted contravention of the monetary commandments. The day of its judgement is at hand. Meet it with the fear and trembling that the ancient weather forecasters tried to forewarn you with. Maelstrom meet misery meet mankind.

bythewaySeptember 12th, 2008 at 11:13 am

“At All Cost”The U.S. is officially attacking Pakistani citizen within Pakistan’s borders by military means:President Bush secretly approved orders in July that for the first time allow American Special Operations forces to carry out ground assaults inside Pakistan without the prior approval of the Pakistani government, according to senior American officials.This is an open declaration of war against Pakistan.The commander of Pakistan’s armed forces understood that and promises to fight back:”The sovereignty and territorial integrity of the country will be defended at all cost and no external force is allowed to conduct operations inside Pakistan,” [Gen. Ashfaq Parvez Kayani] said.That grave sentence is the last one in the AP report.Have the people of the United States understood what Bush is doing here?He just started a war with a nuclear armed nation of some 170 million people.Have the NATO/ISAF troops in Afghanistan and their civilian overlords understood what Bush is doing here?U.S. troops outside of NATO/ISAF command attacked the country through which some 80% of all logistic that sustain those troops are shipped. There is no real alternative transport for these materials and last week the route was already shut down for day. That was clearly a warning.The international media seem to be quiet about the issue.There should be outrage. Attacks like the ground operation last week have zero military relevance for the outcome in Afghanistan. Kill one ‘senior militant’ and ten others will step up to take his job. But such operations endanger all ‘western’ troops and civilians in Afghanistan and Pakistan.There are clear alternatives to this. The U.S. commander in Afghanistan requested 10,000 more troops to fight the Taliban within Afghanistan. Those could seal the border to Pakistan. But Bush does not want to pull troops out of Iraq and will send only some 3,500 to Afghanistan and that only next spring. Instead he widens the war to include another country.Some 90% of the Pakistani public are already against any cooperation with the United States. Mr. Ten Percent Zardari lied and bribed himself into the Pakistani presidency with the help of the U.S. ambassador to the UN Zalmay Khalizad. The U.S. seems to think Zardari is an asset. In reality his approval rating in Pakistan is 14%. He is irrelevant. The Pakistani army will do what it thinks is best for the country, no matter what Zardari says.General Kayani just announced layed down a marker: “The sovereignty and territorial integrity of the country will be defended at all cost.”It is time for people to understand what “all cost” includes. People may be more familiar with the term “all options are on the table.” That is, what I think, Kayani meant.http://www.moonofalabama.org/

GuestSeptember 12th, 2008 at 11:14 am

Readers should check the latest informed comments on Hurricane Ike at this link:http://www.wunderground.com/blog/JeffMasters/show.htmlIt is a huge mistake to understimate this Hurricane, just because the news says “it’s only a Category 2 storm”. In fact, Ike is tremendous storm – enormous in size. Take a look at the satellite photo’s! Ike now occupies roughly 60% of the Gulf of Mexico.The total destructive energy in this storm is currently estimated to be 30% higher than Hurricane Katrina, which devastated New Orleans. The ocean surge at Galveston is now predicted to be at least 20-25 feet, and across a wide area.Houtson is home to 8 major oil refineries in the USA. Do I need to spell out the implications for this fact? It’s pretty amazing that oil prices have advanced to a mere $102/BL today.More and more the futures markets (esp. commodities) are starting to show ridiculous pricing trends, as hedge funds use “fear-based trading” in lieu of sensible expectations.It’s conceivable the hedge funds could get lucky with their modest pricing predictions – maybe Texas will be spared a lot of damage. But I tend to doubt it. Given the pictures that I see on those satellite photo’s, it looks like Ike will cause some of the biggest $$ damages – and most expensive insurance claims – that Texas has even seen.PeteCA

GuestSeptember 12th, 2008 at 11:22 am

Pak army ordered to hit back US forcesFri, 12 Sep 2008 08:35:21 GMTPak army put on high alert to confront any US agressionThe Pakistani Army has been given orders to retaliate against any unilateral strike by the Afghanistan-based US troops inside the country.Army Spokesman Maj Gen Athar Abbas confirmed the orders in a brief interview with Geo News on late Thursday night.The decision was made on the first day of the two-day meeting of Pakistan’s top military commanders to discuss the US coalition’s ground and air assault in Waziristan region which killed dozens of civilians.Army Chief General Ashfaq Parvez Kayani chaired the meeting which began in Rawalpindi on Thursday at the Army General Headquarters.Pakistan’s military commanders expressed their determination to defend the country’s borders without allowing any external forces to conduct operations inside the tribal belt bordering Afghanistan, sources said.A senior official said the military commanders also discussed the implications of the American attacks inside Pakistan and took stock of the public feeling.”In his statement, Genral Kayani has represented the feeling of the entire nation, as random attacks inside Pakistan have angered each and every Pakistani,” he said.Earlier on Wednesday, Kayani rebuffed the American policy of including Pakistani territory in their operations against the al-Qaeda and Taliban linked militants hiding in the areas near Afghan border.Also, Prime Minister Syed Yousuf Raza Gilani noted that Kayani’s remarks on country’s defense were true reflection of the government policy.The army decision followed bloody incursions by the US ground troops into tribal belt as well as a string of missile strikes by CIA-operated drone aircraft.The reaction also comes after US President George W. Bush approved US military raids on militants inside Pakistan without Islamabad’s agreement.The development also brought into the open the increasing mistrust between the Americans and the Pakistanis over how to handle the Taliban and al-Qaeda linked militants in Pakistan’s tribal areas.Some political expert predict the break out of an all-out war between the United States troops and Pakistani army following the Bush administration’s approval of ground and air assaults inside the country.http://www.presstv.ir/detail.aspx?id=69186&sectionid=351020401

GuestSeptember 12th, 2008 at 11:34 am

Just an FYI-with today’s horrible retail sales numbers, my preliminary GDP estimate for Q3, with data through August, is -1.37. Oh but, I guess I will be wrong because stocks don’t seem to want to price this in…

GuestSeptember 12th, 2008 at 11:35 am

More handouts for inefficient US losers!!! Nationalize these guys too-hell why not!12:28 p.m.Potential for federal loans buoys GM, Ford shares

GuestSeptember 12th, 2008 at 11:38 am

Officials warn Hurricane Ike may deliver ‘catastrophic’ blow to Galveston Bay with massive 20-foot storm surge.

GuestSeptember 12th, 2008 at 11:40 am

URGENT: Senior administration official confirms to FOX News that U.S. will expel Venezuela’s ambassador in response to Hugo Chavez ordering American envoy to leaveGeorge Bush is out of control and we may now be on the verge of WWIII with the recent Pakistan moves, Georgia moves and Chavez moves…God help us all…

GuestSeptember 12th, 2008 at 11:55 am

Look at a radar image of Ike-the NE quadrant is raking every oil platform we have in the gulf we own! Wait until it takes out the Houston refineries!!!

GuestSeptember 12th, 2008 at 12:12 pm

Very SEVEREhttp://www.bloomberg.com/avp/avp.htm?N=av&T=Roubini%20Says%20U.S.%20at%20Start%Oh, and IKE is supposda be bad too.

GuestSeptember 12th, 2008 at 12:24 pm

Guest: “More handouts for inefficient US losers!!! Nationalize these guys too-hell why not!12:28 p.m.Potential for federal loans buoys GM, Ford shares”The action in the US markets these days is so pitiful – that it’s downright pathetic. I checked the F and GM stock prices myself this morning, and I was amazed to see them going up! Of course it’s due to the expecation of a $50 billion Gov’t loan.But who says that Ford and GM are competititive, or that this will change anything about their major problems with US labor costs, or their myopic policies about car and truck designs?Meanwhile, stock prices on solid gold producers and major oil companies are getting hammered, as hedge funds short commodity-related sectors. This iastragic, because small investors are bailing even when it makes no sense. Come on now. Is anyone going to tell me that just because oil is at $100/BL, that the oil companies aren’t going to make a handsome profit? Is anyone going to tell me that established gold producers are not going to make profits, just because gold is $750/oz instead of $900/oz? Of course not. That’s totally ridiculous. The fact is that these companies are a steal at their current P/E ratio’s, and they’re some of the FEW American companies that are likely to be making profits in the 3Q and 4Q of 2008.The American economy is being turned into a shambles by Bush and his cronies. Author Jim Kunstler pretty much got it right. The current Republicans will not be remembered as heroes. They’ll be remembered as the “party that wrecked America”.PeteCA

GuestSeptember 12th, 2008 at 12:32 pm

Obama is a loser! A blue collar male democrat, that adddressed the economy, would have won in a landside. Especially a Southerner. Democrats have only themselves to blame when only Obama and Hillary were the options!

MedicSeptember 12th, 2008 at 1:13 pm

Obama is then best candidate the Dems have put forth in 2 generations – the media, the stupidity of the populace and the lies of the right-wing machine are what keep people like you from knowing anything about him.His intellect and abilities will be more than obvious in his upcoming debates with McCain. The old, tired, weak-minded warrior will be laid bare for the world to see. I am in hopes that someone such as yourself would spend the time to dig into and examine such things as the “bridge to nowhere” that Palin supposedly said no to – only to still accept all the money earmarked for that bridge yet promised to not build it. Yeah, she’s gonna clean up Washington. HOW STUPID CAN YOU BE!!!! DO US ALL A FAVOR AND DON’T VOTE YOU MORON!!!!!!

GuestSeptember 12th, 2008 at 1:08 pm

BULLETIN OIL FALLS BELOW $100 A BARREL FOR THE FIRST TIME SINCE EARLY APRILHow can this be when just a month ago, the mention of a hurricane shot oil up $20?

GuestSeptember 12th, 2008 at 1:34 pm

Medic-we should all not vote this year. That would send the loudest message ever that teh body politic MUST change to once again be “of the people for the people”Both candidate choices are hardly quality…besides, the president/vice presisent are but mere tokens. Congress is the big enemy of the people!

MedicSeptember 12th, 2008 at 1:47 pm

More accurately the lobbyists who pay off congress and the laws that allow it are what is killing us.There are currently 6 registered lobbyists for each congressional member. These folks sit with staffers (who actually write the laws) and give them “suggestions” about what to include. Miracle of miracles, many find their way into laws verbatim. This is the biggest issue in government.Again, the elimination of the 2 party system and the implementation of a parlimentary system that would permit and encourage many different groups and parties to have a hand and a voice in government would force more cooperation (as majorities would be less likely) between interests.Comments like the one I responded to above only serve to try and disenfranchise voters who would dare question TPTB. Don’t get me wrong – Obama is not the One (he’s no NEO) who will fix it all, but he is the one most likely to not give the rest away to the wealthy elites and may actually have some integrity. That would be a nice change from the past 7 years.

GuestSeptember 12th, 2008 at 2:25 pm

Obama will give attention to Title VII, start talking to Iran and make uber-friends of Europeans Socialists who think that they nothing to learn from the United States. On the the contrary these people think we have something to learn from them!

MedicSeptember 12th, 2008 at 2:32 pm

Guest, you are correct – we have nothing to learn from those Europeans! Well, maybe we could learn about how they provide better healthcare than us, pollute less than us, lie less than us, etc. etc.Have another glass of Kool-Aid you flag waving idiot. JUST BECAUSE YOU ARE AN AMERICAN DOES NOT MEAN YOU ARE BETTER THAN THE REST OF THE DAMN WORLD!!!!!Jesus, would you people stop procreating!

AnonymousSeptember 12th, 2008 at 3:26 pm

Medic, Its sounds like you listened to the show with sara palin last night. I started to watch but then my anger over came me. I am in disbelief that there are any humans on this planet that are supporting her. This has to be a joke. Please let it be a joke

GuestSeptember 12th, 2008 at 2:04 pm

The witching hour is upon us, US fraud market shoudl finish up a couple hundred points just to keep the sheeple feeling rich for the weekend.

GuestSeptember 12th, 2008 at 2:23 pm

From the “just doesn’t matter” category:Bank, Thrift & Specialty LenderFORECLOSURE ACTIVITY CLIMBS 11.65% IN AUGUST, JUMPS 26.69% YEAR OVER YEAR RealtyTrac’s latest U.S. Foreclosure Market Report showed foreclosure filings on 303,879 properties nationwide during August.9/12/2008 12:12 PM ET

GuestSeptember 12th, 2008 at 2:27 pm

Funny that right before the 2006 elections oild had a massive correction! And the same is happening right now in 2008! If oil falls to say $85 in the next 6 weeks consumer confidence will be way up! Especially with a 2 handle on a gallon of gas again!

GuestSeptember 12th, 2008 at 3:25 pm

I think they can’t juggle and keep all the “balls” in the air – if gold is up, oil is down; if stocks are up, oil is down; if stocks and oil are down, gold is up. People can manipulate the markets, but it’s too big a system to keep it all inflated artificially at one time.Today, oil and stocks are down. Go gold. If oil continues to slide as we approach the US elections, then watch gold – if I’m right, it should lift off.

GuestSeptember 12th, 2008 at 2:31 pm

I suspect a number of insurance companies will be strategically attacked by hedge funds if we have widespread devastation from this hurricane. Why not BK out ahead of a huge claim loss, attrition of policies, and greater depression?

GuestSeptember 12th, 2008 at 3:16 pm

DollarLast Gasp of a Doomed Currency ( By Schiff)http://www.europac.net/#”In the latest example of financial market madness, the recent government “bailout” of Freddie Mac and Fannie Mae has perversely resulted in a sharp rise in the value of the U.S. dollar. If the markets were functioning rationally, the transference of staggering new liabilities to the U.S. Treasury would have been immediately seen as catastrophic for the dollar. Instead the markets have ignored the obviously negative long-term implications and have remained fixated on the more immediate effects. However, rather than solving the problems, the government’s actions merely confirm my worst fears, and increase the chances for a hyper-inflationary outcome.More recent comments about the dollar from othershttp://dollardaze.org/blog/Professor please tell me if you don’t want these off topic links.hlowe

GuestSeptember 13th, 2008 at 1:31 am

Heh. I liked her at first (as a Republican). But then I learned about her support for the Bridge to Nowhere, about 100 other stupid earmarks (right in line with the bailouts), Troopergate, firing that librarian for not burning books, firing the long-serving police chief, seeking war with Russia (a nuclear war next year, yeah, that’s just what we need to “stimulate the economy,”), Dairygate, basically bankrupting Wasilla with $20 million debt. And I realized– well, I’d like the USA to still be halfway intact in 4 years. My Republican friends are voting for either Barack Obama or for Bob Barr or Chuck Baldwin. Joe Biden will be the next VP, and thankfully, the guy has some genuine skill.

AfASeptember 12th, 2008 at 3:40 pm

Regulation vs. Free marketI do not really know what professor means when he says “we need more regulation” but I believe many people have the wrong idea about what constitutes regulation/ free market mixture. The discussion is weighted by many ideological and political preconceptions and amalgams.I believe that none of these two negates the other one, quite the contrary. For me, regulation (as one of the main functions of a government) should be intended as a playing ground to ensure honesty and transparency on the marketplace not to force it either way. The market has its innate ability to playing according to the set rules (rules that could be explicit or implicit) and to auto-regulate itself most of the time in the medium term. The only instances where I see the market discipline deviate or become dangerous is either because of (1) the absence of proper regulation, (2) the presence of flawed (implicit or explicit) regulations/ rules or (3)short term speculations that maybe perpetuated because of either (1) or (2) or both.In a response to Professor’s “rant” about lack of regulation and Mish’s critic that advocates that it was regulation that brought this crisis and all rules should be removed, I think that one has to make sure first about which “regulation” we are talking about. From point (1), professor is right that we lack proper regulation, and we need it to police the banking industry. From point (2), Mish is right that it partly because of flawed/biased regulations that we are here now. One more point I want to stress is that when we want to assess if there is/was regulation or not, we have to look beyond “book definitions” and labels to find the true story. It might be true that F&F had a regulator, but if that regulator was asleep on the switch it is technically an unregulated market. If the SEC enforces the rules only when it helps make prices go up, then it is a flawed regulation. If, in the environment of a clearinghouse centered market where all gains and losses are marked2market daily then the market is regulated even if there were no regulator.It is my belief that in almost all domains, institutionalizing one IDEAology over others is a bad policy. However, I also believe that it is the way how these different ideas are engineered together that differentiate between the worst ever system and the optimal one. This applies to free-market vs regulation as well as socialism vs capitalism and others (call whatever mixture thereof whatever you want).

ArmchairSeptember 12th, 2008 at 10:36 pm

This may be a generalization, but the disciples of Foucault and Rand often miss the point about regulation, and liberals and enlightenment types often just throw the expression in people’s faces. Foucault disciples see regulation as a hopeless charade that is meaningless before the mighty cult of personality. Rand disciples believe every single regulation is another tether to bring the mighty Atlas down.Foucault and Rand have a blind-spot when it comes to regulation of human behavior. They think they have the monopoly on cynicism and the capability of understanding the real motives of human behavior. How then can they be contemptuous of a regulations such as the Glass-Steagall Act? It is a blind spot to brilliant regulation that they have. They presume that regulations are promulgated by nefarious or dimwitted types. They never stop to think of the environment in which such regulation was born, was a sterilization of the corruption that came before it, and it was written, at last, by competent people who wanted people to able to make money and prosper and it was written with a great understanding of how humans act.When you think that the very act of regulating human behavior is hopeless or anathema, then you can’t comprehend that brilliant and effective regulations can work. After all, an unregulated sports game would not be that fun to watch. Do you want the players to be able to step out-of-bounds? Do you want the players to be able to keep running after they have been tackled? Do you want them to count foul balls as home-runs?Foucault and Rand disciples are also some of the best informed, most enlightened people around. I wish that more of them would wake up and see that some human behavior should be regulated, and admit to some of their own naivete.

Miss ItalySeptember 12th, 2008 at 4:04 pm

Can I suggest to place a link to the commented entry, so that, each entry is still in chronological order, but if I want to see which comment it refers to I can just click to the link and get moved to the related post?It would be much easier to read the new entries and not miss any. Thanks

PeterJBSeptember 12th, 2008 at 5:28 pm

Apologies as I repost this as I am yet uncomfortable with this threading system:@ Phil and Guest (above).Thank you for your comments but I tend to disagree with the final analysis in which you obviously find despair and frustration.Firstly I believe that most men are good and that the human spirit is infinite in possibility – and should be allowed to soar only limited by qualitative constraints (and circumstances).Secondly, the US Constitution is not only a remarkable document but it is a profound expression of an intellectual socio-economic system based in experience, science and intellect; it is unique. It was born out of a similar system to where it is now returning.Thirdly, power corrupts and produces greed, avarice, and applied crasse stupidity; etc., etc. We know all this; No man can be trusted, a priori. (emotionally phrased)Fourthly, I believe that “the science of economics (sic)” is treated as a faith-based” religion, complete with ritual, superstition, dogma, priests, high priests, pope and warrior priests; it is a religion that needs support to ensure that it stands; as do all religions or “faith-based” systems. Or, in practise, where prayer works better when a offering is extended.And lastly, for the moment, faith-based belief systems don’t work; physics works as physics is the science of how things work. The Laws of Physics are inviolate where you cannot make something out of nothing (ex nihilo).The US Constitution was not a “faith-based” economic system and it allowed the human spirit to soar as is well in evidence. And, no, I agree, it only took a short interval until the shredding of this Declaration of the human spirit commenced, to something out of which the Constitution and hence the USA was borne.However, the US has many of the greatest and finest Universities and learning Institutions in the World; the greatest technologies the greatest of all expressions of human advances yet, the peoples of this great Nation, have allowed the emotionally bent, faith-based system to dominate and destroy, rather than to lean towards its intellect and historical creation, which gave the milieux for the human spirit to go forth unimpeded by stupidity and incarceration.In conclusion to this response then, it is not private gangs or financial criminals per se; the problem rises from the corrupted human spirit (“Leadership”)that has fed at the consensual trough of faith-based distortion of a sound socio-economic system that has resulted in a total distortion of accord and logic in favour of even, that originating distorted system of fractional reserve banking. It should be noted that this system was found corrupting and invalid in the times of the early Greeks, onwards through the Dark Ages, through the Venetian Period and onto the times of Napoleon and then further through the times of Colonial India (etc.,). Why then do we persist in such a abomination and seat of corruption to found our socio-economic system? In the USA you didn’t!!!!!! and that is the point!!!!!!!In other words, to point, Mr. Benanke should have known this but his actions have been in favour of the “status quo” and the continuity of destruction of the free-market system which the US Constitution originally granted and declared, ad nauseum.Mr. Benanke just conceded that which the banking and financial industries lobbys’ demanded and granted the continuance of decay of the American system. Sadly but an act true to and consistent with a “faith-based” system. You don’t need a PhD to be a “warrior priest”.The USA was once the greatest Nation on this planet and could be again, if and only if, it can get back to the correct fundamentals of a non faith-based socio-economic systems and then all these persons that you both depict as criminal would be qualitatively constrained in their soaring the possibility and would becomes, instead, hero’s.The irony to all this faith-based system stuff, is that the riches, wealth and power is far less in possibility than the “non-faith-based” system where those that try and get caught, become criminal and die in shame.Ho hum

PeterJBSeptember 12th, 2008 at 5:55 pm

@ LB”I was briefed on the proposed US financial reforms which will be shoved through with minimal review. Short version is that the Fed wins an explicit “financial stability” role which gives it powers and secrecy to do pretty well whatever Tim Geithner chooses to do for his capitalist crony clientele.”I am also of the considered opinion that these moves makes Congress and Congressmen / women somewhat redundant.The Office of the President appears now to have full power / authority to declare War and the President can run the country through Presidential Decree – so is their any useful purpose for Congress and the Senate? It appears that all important powers are now in the hands of the White House.Ho hum

ptmSeptember 12th, 2008 at 8:06 pm

Based upon oil pricing for the last eight years, I have posted in the past that one can calculate the average cost of a gallon of gasoline by multiplying 3% times the price of a barrel of oil. It’s not an exact estimate however and prices tend to be higher in California and New York, but it seemed to work well for the midwest and southern states.The price of oil is now $101/barrel * 0.03 = means gas should be $3.03/gal! In my neighborhood it has held steady at $3.62 for the last month or so. Other places it held around $3.50/gal.That tells me that as soon as the spot price goes up, oil jobbers bump the price, but as oil prices drop they hold on to the higher prices as long as possible. Basic human greed I guess.But it gets better; Ike is now threating the Gulf coast and gas jumped in Memphis from $3.50/gal to $5.35/gal! In my town, it jump from $3.63/gal to $3.99/gal. This all happened within a six hour period today throughout the region! Lines at the gas pump have been forming. Fist fights have broken out at Memphis gas stations. And some stations are out of regular.Oil seems to be acting like gold; the paper value of oil is $101/barrel or $3.03/gal of gas, but the physical price of gas is $4.50/gal or $150/barrel! Crazy times or just a glimpse of what is in our collective future?

PhilTSeptember 12th, 2008 at 9:05 pm

Samak was ordered to step down Tuesday when the Constitutional Court found that he had engaged in conflict of interest by being paid for appearing on a televised cooking show.That appeared to offer a face-saving way for Samak to depart, without being seen to bow to the protesters who have camped outside the prime minister’s office for more than two weeks, demanding his removal.

Entire Article==> Ousted Thai prime minister loses his party’s backing

GuestSeptember 12th, 2008 at 10:34 pm

gee, who the heck would want to plunder/pillage/steal those oilfields??Brazilians authorities are scizophrenics :-/can you see guys??continuation of a soveriegn state existence/safety/policy is NOW being safeguarded with the use of MILITARY POWERyeah the move towards that have taken place a while back, but its gaining pace now..Some of us might not survive the next war..baaaahh im off to the bar…ttp://africa.reuters.com/energyandoil/news/usnN12261239.html?rpc=401&Brazil flexes military might around new oil fieldsFri 12 Sep 2008, 14:41 GMT[-] Text [+] By Eduardo SimoesNITEROI, Brazil, Sept 12 (Reuters) – Brazil deployed warships, fighter jets and thousands of troops off its southern coast on Friday, starting two weeks of military maneuvers aimed at showing the world it can defend vast new oil reserves.The exercise, dubbed Operation Atlantic, will simulate an attack by a fictitious enemy on oil platforms and pipelines both on and off shore along the coastline of the states of Rio de Janeiro, Sao Paulo and Espirito Santo.The maneuvers are the latest in a national debate over how to manage a slew of recent deep-sea oil finds that could thrust Brazil, which still occasionally imports crude to meet domestic demand, into the top 10 of the world’s oil producers.”This is an exercise that is intended to dissuade, a show of force,” Admiral Edlander Santos, the commander of the operation, said at a ceremony near Rio de Janeiro marking the beginning of the exercise.Over the next two weeks, 10,000 troops, as many as 50 fighter jets, 17 ships and at least one submarine will be mobilized for the exercise, which will cost about 20 million reais ($11.2 million) to stage.

JLCSeptember 13th, 2008 at 12:44 am

Voting for either an elephant or an ass only legitimizes the tyranny of the two party power regime, and futher binds the Republic in chains.McCain? Obama? It is a false dichotomy. They agree on 95% of the issues, especially the issues that are the most relevant to our ongoing discussions here.The other 5% gets blown way out of proportion in order to create the illusion of choice.I believe McCain is a fool, and Obama a charlatan. The funny thing is, one generally knows what to expect from a fool while a charlatan will surprise. The devil you know vs. the devil you don’t.

GuestSeptember 13th, 2008 at 2:38 am

In fact U.S. developments will not much change regardless of who gets the office.Neither one of them can do much about the current economical developments, except perhaps make decisions that increase the current executive power of the U.S. President, increase the government ownership and role in the life of the private people, and increase the domestic spying authorities given to FBI.Both of the candidates are equally likely to stop “entitlement” programs such as social security, claiming that it has to be done because it is economically unsustainable, while neither one of them will do anything about the American holy cow: military spending.You will not see a marked increase in people with health insurance in America, regardless of which one these has the power. And the various political lobbies will be just strong as they are now.I do not know why Americans even bother spending their time to go to the rallies arranged by these candidates. Perhaps they get free food and coffee there, who knows.If people want hope for the future, they should check out Jehovah’s Witnesses. What they are saying seems more believable than either one of these candidates.

MedicSeptember 13th, 2008 at 4:40 am

Thanks but I think I would rather take my chances on someone who does not talk about policy with “a different Father” this time. The religious folk have had their guy for the last 7 years, and he has only been the single most destructive human to ever hold the office.It’s time to stop thinking some magic guy in the sky is going to fix this. It’s time to get real and get to work.

MedicSeptember 13th, 2008 at 10:41 am

According to ptm, I can get “pissed-off” and rant. I like to think of it as just giving a dose of reality to a confused public – kind of like community service.Thank you for the kind words. I will let you know when I publish my book:-)

AnonymousSeptember 13th, 2008 at 6:33 am

@ LBI follow your posts with great interest as you always have something insightful to say. Could you suggest anything ordinary citizens could do to stop this horror show in the name of “financial stability”?I have a forlorn hope that one day perhaps you, the Professor, Yves, and a number of other sane competent professionals could take over the US’s economic agenda and lead us into a fairer, if a little more frugal, world.

mammonSeptember 13th, 2008 at 9:50 am

Globalization and Financial Deregulation since 1980 have weakened the ability of the nation states to regulatecapital, labor and taxes. The Bretton Woods international agencies were diverted from their original roles and nowwe have a non-democratic WTO that represents the interests of Multinationals, the IMF and World Bank that representthe interest of Multinational Creditors. The United Nations that has an undemocratic Security Council and no regulatorypower. The citizens of all the countries in the World are at the mercy of an International Corporate Elite that is headedby the Alchemist Financial Elite. Alchemists because they can turn digital data entries into money with complex derivatives.The Alchemist power was taken to its extreme, and now Paulson and company are trying to put humpty dumpty together again.The problem is that the Humpty Dumpty Financial Ether is so large that it is unmanageable. Every time a contract defaultsdigital money dissapears. They will make a great effort to disperse the debt to the nation states through Bailouts.We need to return to the initial Bretton Woods ideas and REGEGULATE FINANCE. When a company has the capacity to createmoney through a system of fractional reserve that is magnified by leverage and lightly regulated, then Capitalism has a tendencyto stray from its assigned task of Production Capitalism. Banks must be subservient to the task of assisting in Production Capitalism increating efficiency. The regulation to anchor banking in its task have been hollowed out to the point where they arenot effective. The real problem is that the Dethroning of the Financial Elite would take a Global Regulatory Effort thathas no Institutional Mechanisms today. We must take Politics to a Global Regulatory Level. Singular Regulatory Schemes bysingular nation states are not viable, because the Multinational Elite have the ULTIMATE EXTORTION power to relocate toanother nation state. We either Regulate the Global System or we fail. It is imperative to reregulate finance. Any politicalproject short of Global Regulation will fall prey to Downward Harmonization of regulation in individual nation states. Thisis a large task, but a necessary task today. The politics of today are not dealing with the real issues and democracy hasbeen evicerated into an unrecognizable antithesis of democracy. We have lobbyist drawn laws and unitary executives in theUnited States. The constitutional checks and balances have been erased with great complexity. We can’t even promote democraticsocial goals, because there is no lobbying constituency for such. We have a crisis! However we don’t have the luxury to abstainfrom the democratic process. We must chose the least harmful options to generate new leadership! It has been taboo to bringup the real issues to the forefront of political discussion. The corporate media is an effective Gatekeeper against change.The axiom that issues don’t exist if not on Television is true, because the population is too busy trying to economicallysurvive. The first task is to verbalize the Big Picture to the population. The internet has been helpful, but not a factorin this endeavor. We must create community based change, but there must be awareness of the big picture!

Cedric RegulaSeptember 13th, 2008 at 3:00 pm

PeteCAActually, congress did appropriate $25B to US automakers already in the energy bill passed a year or two ago. But they haven’t made the money available yet. So in the mean time automakers went back for $50B. It is supposed to be so they can make green cars and meet the mandated fuel efficiency standards slowly increasing by 40% by 2020. In past years we would call this re-design and re-tooling, and all the accountants I used to know would have a line item in the P&L for that. But we found out a few years ago that GM has some other GAAP approved way of doing P&L.And there is also an odd coalition of windmill makers, steelworkers and Sierra Club people that are looking for $100B to make windmills and jobs.We just found out after Gustav that our post Katrina spending of $300B has left us with leaky dikes, even when facing a cat 1 hurricane.So how can a country with leaky dikes believe that they will make windmills that work?Confused,CR

kilgoresSeptember 14th, 2008 at 1:20 pm

NYT just reported Barclays has pulled out as a possible purchaser for LEH, increasing likelihood of LEH liquidation.SWK

Guest from TaiwanSeptember 15th, 2008 at 9:04 am

How can the strengthening of the USD compared to Euro starting July be explained? I have heard someone saying: recession -> drop in oil consumption -> drop in oil prices -> strenthing of the US dollar. But were does the link between the oil price and the strenth of the USD come from? Or is there something else happening since July ???Thank you very much !!!Stefan